If you’re in the market for a home purchase, you likely have been closely monitoring the fluctuations in mortgage rates. In recent years, these rates have experienced significant highs, followed by steep declines, and are currently exhibiting a slight decrease. Have you ever pondered the reasons behind these fluctuations?

The explanation is intricate, as numerous factors can contribute to the dynamics of mortgage rates. Here, we’ll delve into a few of the most influential factors that come into play.

Inflation and the Federal Reserve

While the Federal Reserve (Fed) doesn’t directly set mortgage rates, it does have an impact by adjusting the Federal Funds Rate based on factors such as inflation, the state of the economy, employment rates, and other relevant indicators. Consequently, changes in the Federal Funds Rate often lead to corresponding adjustments in mortgage rates. Business Insider explains:

“The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.”

Moreover, mortgage firms consider the 10-Year Treasury Yield when determining the interest rates for home loans. When the yield increases, it typically results in a rise in mortgage rates as well. Conversely, the same principle applies in the opposite direction.  According to Investopedia:

“One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.”

In the past, the difference between the 10-Year Treasury Yield and the 30-year fixed mortgage rate has generally remained stable, but this has changed in recent times. This discrepancy suggests the possibility of a decline in mortgage rates. Therefore, monitoring the trend of the treasury yield provides experts with insights into the potential direction of future mortgage rates.

Bottom Line

As the Federal Reserve convenes later this week, industry experts will closely monitor their decisions and the subsequent effects on the economy. To adeptly manage any alterations in mortgage rates and their implications for your relocation plans, it is important to enlist the support of a team of professionals.  Let’s connect so I can help you make an informed decision.