What causes mortgage rates to go up or down?
Mortgage rates can be influenced by several factors, including:
Economic conditions: Mortgage rates tend to rise when the overall economy is performing well. This is because strong economic growth often leads to increased demand for loans, including mortgages. When demand is high, lenders may raise rates to balance their supply of funds.
Monetary policy: Central banks, such as the Federal Reserve in the United States, play a significant role in influencing mortgage rates. Through their monetary policy decisions, central banks can adjust short-term interest rates, which indirectly affect long-term mortgage rates. When central banks raise interest rates, it can lead to higher mortgage rates.
Inflation: Inflation erodes the purchasing power of money over time. Lenders consider inflation when setting mortgage rates. If inflation is expected to rise, lenders may increase mortgage rates to offset the anticipated loss in value of the loan repayments.
Bond market: Mortgage rates are closely tied to the yields on long-term government bonds, such as the 10-year Treasury bond in the United States. When bond yields rise, mortgage rates tend to follow suit. This relationship exists because both mortgage rates and bond yields are influenced by similar factors, including investor demand, inflation expectations, and overall economic conditions.
Creditworthiness: Borrowers' creditworthiness plays a role in the mortgage rates they are offered. Lenders assess the risk associated with lending to an individual, considering factors such as credit score, income, debt-to-income ratio, and down payment size. Borrowers with stronger credit profiles typically receive lower mortgage rates, while those with lower credit scores or higher risk profiles may face higher rates.
Housing market conditions: The state of the housing market can impact mortgage rates. In a robust housing market with high demand, lenders may offer more competitive rates to attract borrowers. Conversely, in a weaker housing market with less demand, lenders may adjust rates higher to compensate for perceived risks.
It's important to note that while these factors generally influence mortgage rates, they can be complex and interconnected. Additionally, mortgage rates can vary among lenders due to their individual policies, competition, and the specific loan terms offered.
Another Fed Rate Hike
On Wednesday, the Federal Reserve unanimously raised rates by 0.25%. This places the Fed rate to it's highest mark in 22 years. The next decision for the Fed is in September, and they left open the possibility of raising rates again. However, market experts are only putting a 24% chance on a September hike.