05/02/2024
What Is Going on with Mortgage Rates? đ đ¸
You may have heard mortgage rates are going to stay a bit higher for longer than originally expected. And if youâre wondering why, the answer lies in the latest economic data. Hereâs a quick overview of whatâs happening with mortgage rates and what experts say is ahead.
Economic Factors That Impact Mortgage Rates đ When it comes to mortgage rates, things like the job market đź, the pace of inflation đ, consumer spending đł, geopolitical uncertainty đ, and more all have an impact. Another factor at play is the Federal Reserve (the Fed) đŚ and its decisions on monetary policy. And thatâs what you may be hearing a lot about right now.
Hereâs why.
The Fed decided to start raising the Federal Funds Rate đš to try to slow down the economy (and inflation) in early 2022. That rate impacts how much it costs banks to borrow money from each other. It doesnât determine mortgage rates, but mortgage rates do respond when this happens. And thatâs when mortgage rates started to really climb đ.
And while thereâs been a ton of headway seeing inflation come down since then, it still isnât back to where the Fed wants it to be (2%). The graph below shows inflation since the spike in early 2022, and where we are now compared to their target rate:
As the graph shows, weâre much closer to their goal of 2% inflation than we were in 2022 â but weâre not there yet. Itâs even inched up a hair over the last 3 months â and thatâs having an impact on the Fedâs plans. As Sam Khater, Chief Economist at Freddie Mac, explains:
âStrong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.â đ
Basically, long story short, inflation and its impact on the broader economy are going to be key moving forward. As Greg McBride, Chief Financial Analyst at Bankrate, says:
âItâs the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation â thatâs really the hub on the wheel.â đĄ
When Will Mortgage Rates Come Down? đ Based on current market data, experts think inflation will be more under control and we still may see the Fed lower the Federal Funds Rate this year. Itâll just be later than originally expected. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), said in response to the Federal Open Market Committee (FOMC) decision yesterday:
âThe FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.â đď¸
In the simplest sense, what this says is that mortgage rates should still come down later this year. But timing can shift as new employment and economic data come in, geopolitical uncertainty remains, and more.
This is one of the reasons itâs usually not a good strategy to try to time the market. An article in Bankrate gives buyers this advice:
â⌠trying to time the market is generally a bad idea. If buying a house is the right move for you now, donât stress about trends or economic outlooks.â đĄâ¨
Bottom Line If you have questions about whatâs happening in the housing market and what that means for you, letâs connect. đ¤
I hope this adds a bit more clarity and emphasis to your message! If you need further assistance, feel free to ask.
