What Is Going on with Mortgage Rates?

What Is Going on with Mortgage Rates?

Mortgage rates are projected to remain elevated for an extended period, contrary to earlier predictions, due to recent economic indicators. Let's delve into the current mortgage rate landscape and what experts anticipate in the near future.

Economic Factors That Impact Mortgage Rates

Various factors such as the job market, inflation pace, consumer spending, and geopolitical uncertainty influence mortgage rates. The Federal Reserve's decisions on monetary policy also play a crucial role. The Fed's move to increase the Federal Funds Rate in early 2022 aimed to curb inflation and economic growth, indirectly affecting mortgage rates. Despite efforts to alleviate inflation, it remains above the Fed's target rate of 2%, as depicted in the graph below, influencing the trajectory of mortgage rates.

As the graph shows, we’re much closer to their goal of 2% inflation than we were in 2022 – but we’re not there yet. It's even inched up a hair over the last 3 months – and that’s having an impact on the Fed’s plans. As Sam Khater, Chief Economist at Freddie Mac, 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 Come Down?

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. It’ll 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:

“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.”

In essence, this suggests that mortgage rates are expected to decrease later this year. However, the exact timing may fluctuate due to evolving economic conditions, geopolitical tensions, and other factors. Attempting to time the market based on these variables is generally not recommended, as highlighted in an article by Bankrate:

“ . . . 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.”

Bottom Line

If you're curious about the current state of the housing market and how it affects your situation, feel free to reach out. Let's connect and discuss your concerns.