2 Factors That Impact Mortgage Rates

If you're in the market for a home, you've likely been closely monitoring mortgage rates. In recent years, they reached historic lows, experienced significant increases, and are currently showing a slight decline. Have you ever pondered the reasons behind these fluctuations?

The explanation is intricate, as numerous factors can impact mortgage rates. Here are some of the most influential factors in play.

Inflation and the Federal Reserve

The determination of mortgage rates is not within the direct purview of the Federal Reserve (Fed). However, the Fed does influence the Federal Funds Rate, adjusting it based on factors such as inflation, economic conditions, employment rates, and other relevant indicators.

In the past few years, the Federal Reserve increased the Federal Funds Rate in an effort to combat inflation, leading to a corresponding rise in mortgage rates. Fortunately, experts anticipate a more favorable trajectory for both inflation and mortgage rates in the coming year.

There is speculation that the Federal Reserve might consider reducing the Fed Funds Rate this year due to a slowdown in inflation, even though it has not yet reached their preferred target.

The 10-Year Treasury Yield

Moreover, mortgage firms consider the 10-Year Treasury Yield when determining the interest rates for home loans. When the yield increases, mortgage rates tend to follow suit, and conversely, the rates typically decrease when the yield drops.

In the past, there has been a relatively consistent relationship between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. However, this historical pattern has not been as steadfast in recent times. This discrepancy suggests the potential for a decline in mortgage rates. 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 be closely monitoring their decisions and assessing the potential impact on the economy. To effectively navigate any changes in mortgage rates and their implications for your relocation plans, having a team of professionals by your side is advisable.

When you’re ready to get the process started, let’s connect.