You may have heard that mortgage rates have remained relatively higher for longer than originally expected. If you’re asking why, the answer lies in the latest economic data. Here’s a quick look at what’s happening with mortgage rates and what the experts are saying.
Economic factors affecting mortgage interest rates
It’s about mortgage rates, the labor market, inflation rates, consumer spending, geopolitical uncertainty and more. It affects. Another factor is the Federal Reserve and its monetary policy decisions. You’ve probably heard it a lot by now. That is why. The Federal Reserve has decided to raise the federal funds rate starting in early 2022 in an effort to slow the economy (and inflation).
These interest rates affect how much it costs banks to borrow from each other. It does not determine the mortgage interest rate, but once it is determined, the mortgage interest rate is the answer. Then the mortgage really started coming out. Since then, there have been many progress, but I still want to feed (2%). The table below shows the inflation from the beginning of 2022, and now we are compared to the target speed.
As the chart shows, we are much closer to reaching 2% inflation than in 2022, but we are not there yet. In fact, it’s been a hair’s breadth over the past three months — and that’s hurt the Fed’s plans. Freddie Mac Chief Economist Sam Hater explains:
“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.”
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:
“It’s 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 — that’s really the hub on the wheel.”
When will mortgage rates drop?
Based on current market data, analysts believe inflation will be under better control and the Fed may still cut the Federal Funds rate this year. It will be later than originally expected. Mike Fratantoni, chief economist of the Mortgage Bankers Association (MBA), commented on yesterday’s Federal Open Market Committee (FOMC) decision:
“The 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.”
Simply put, that means mortgage rates should still be lower later this year. However, times can change based on new jobs, economic data and geopolitical uncertainty. This is one of the reasons why market timing is generally not a good strategy. An article from Bankrate offers the following tips for buyers:
“ . . . trying to time the market is generally a bad idea. If buying a house is the right move for you now, don’t stress about trends or economic outlooks.”