What’s Behind Today’s Mortgage Rate Volatility?
If you’ve been keeping an eye on mortgage rates lately, you might feel like you’re on a roller coaster ride. One day rates are up; the next they dip down a bit. So, what’s driving this constant change? Let’s dive into just a few of the major reasons why we’re seeing so much volatility, and what it means for you.
The Market’s Reaction to the Election
A significant factor causing fluctuations in mortgage rates is the general reaction to the political landscape. Election seasons often bring uncertainty to financial markets, and this one is no different. Markets tend to respond not only to who won but also to the economic policies they are expected to implement. And when it comes to what’s been happening with mortgage rates over the past couple of weeks, as the National Association of Home Builders (NAHB) says:
“. . . the primary reason interest rates have been on the rise pertains to the uncertainty surrounding the presidential election. Although the election is now complete, there continue to be growing concerns over budget deficits.”
In the short term, this anticipation has caused a slight uptick in mortgage rates as the markets adjust and react. Additionally, factors like international tensions, supply chain disruptions, and trade policies can drive investor sentiment, causing them to seek safer assets like bonds, which can indirectly impact mortgage rates. Essentially, the more global or domestic uncertainty, the greater the chance that mortgage rates may shift.
The Economy and the Federal Reserve
Inflation and unemployment are two other big drivers of mortgage rates. The Federal Reserve (the Fed) has been working to bring inflation under control, and has been closely monitoring the economy as they do. And as long as inflation continues to moderate and the job market shows signs of maximum employment, the Fed will continue its plans to cut the Federal Funds Rate.
Although the Fed doesn’t set mortgage rates, their decisions do have an impact, and typically a cut leads to a mortgage rates response. And in their November 6-7th meeting, the Fed had the data they needed to make another cut to the Federal Funds Rate. And while that decision was expected and much of the mortgage rate movement happened prior to that meeting, there was a slight dip in rates.
What To Expect in the Coming Months
As we look ahead, mortgage rates will respond to changes in the Fed’s policies and other economic indicators. The markets will likely remain in a wait-and-see mode, reacting to each new development. And, with the transition of a new administration comes an element of unpredictability. A recent article from The Mortgage Reports explains:
“Today’s economic indicators come with mixed pressures on mortgage rates and we’re likely to be in for a good amount of volatility as markets adjust and respond to the election . . .”
The best way to navigate this landscape is to have a team of real estate experts by your side. Professionals will help you understand what’s happening and can provide you with the guidance you need to make informed housing market decisions along the way.
Bottom Line
The takeaway? Today’s mortgage rate volatility is going to continue to be driven by economic factors and political changes.
Now is the time to lean on experienced professionals. A trusted real estate agent and mortgage lender can help you navigate through it. And with the right guidance, you can make informed decisions. Contact us today at 734-761-3060 or info@condohotline.com.
How Inflation Affects Mortgage Rates Explained
Exactly How Does Inflation Affect Mortgage Rates?
When you read about the housing market in the news, you might see something about a recent decision made by the Federal Reserve (the Fed). But how does this decision affect you and your plans to buy a home? Here’s what you need to know.
The Fed is trying hard to reduce inflation. And even though there have been 12 straight months where inflation has cooled (see graph below), the most recent data shows it’s still higher than the Fed’s target of 2%:
While you may have been hoping the Fed would stop their hikes since they’re making progress on their goal of bringing down inflation, they don’t want to stop too soon, and risk it climbing back up as a result. Because of this, the Fed decided to increase the Federal Funds Rate again last week. As Jerome Powell, Chairman of the Fed, says:
“We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.”
Greg McBride, Senior VP, and Chief Financial Analyst at Bankrate, explains how high inflation and a strong economy play into the Fed’s recent decision:
“Inflation remains stubbornly high. The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, Fed has to pump the brakes a bit more.”
Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens with mortgage rates, it does have an impact. As a recent article from Fortune says:
“The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.”
How All of This Affects You
In the simplest sense, when inflation is high, mortgage rates are also high. But, if the Fed succeeds in bringing it down, it could ultimately lead to lower mortgage rates, making it more affordable for you to buy a home.
This graph helps illustrate that point by showing that when inflation decreases, mortgage rates typically go down, too (see graph below):
As the data above shows, inflation (shown in the blue trend line) is slowly coming down and, based on historical trends, mortgage rates (shown in the green trend line) are likely to follow. McBride says this about the future of mortgage rates:
“With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably.”
Bottom Line
What happens to mortgage rates depends on inflation. If inflation cools down, mortgage rates should go down too. Let’s talk so you can get expert advice on housing market changes and what they mean for you. Contact us today at 734-761-3060 or info@condohotline.com to learn more.