Interest rates are also affected by a number of factors including government policies, investor sentiment, the strength of the housing market and the Federal Reserve’s monetary policy. For these reasons, mortgage rates can move quickly and significantly depending on economic and market events.
Given the potential for quick changes in mortgage rates, homeowners should keep a close eye on them to ensure they’re getting the best possible rate. Furthermore, it pays to work with an experienced loan officer to help ensure the rate you receive matches your budget needs and goals.
When it comes to gauging the direction of mortgage rates, it helps to understand the underlying forces that drive them. The most significant force is the Federal Reserve's monetary policy. The Fed sets a target for the federal funds rate, which ultimately affects the cost of credit and mortgage rates. When the Fed raises the federal funds rate, it puts upward pressure on mortgage rates. Conversely, when the Fed lowers the federal funds rate, it puts downward pressure on mortgage rates.
In addition to the Fed's monetary policy, other economic indicators such as gross domestic product (GDP) growth, unemployment, inflation and consumer spending can also have an impact on mortgage rates. Strong economic activity will typically push mortgage rates up, while weakness in the economy will typically push mortgage rates down.
Investor sentiment is also important when it comes to mortgage rates. Investors holding large positions in mortgage-backed securities (MBS) may buy or sell these securities, depending on their outlook for rates. If investors think rates will decline in the future, they may buy more MBS, which will drive down mortgage rates. Conversely, if investors think rates will rise in the future, they may sell more MBS, which will push mortgage rates up.
Finally, housing market trends and activity can also affect mortgage rates. Increasing demand from buyers can push prices and mortgage rates up, while decreasing demand can have the opposite effect.
Due to the various forces that shape mortgage rates, it can be difficult to predict how rates will move in the future. That being said, experienced loan officers can offer some insight into where rates may be headed in the short-term. In addition, it’s always wise to take advantage of lower rates when they become available.
In summary, mortgage rates can move quickly due to a wide range of economic and market factors. Homeowners should keep a close eye on mortgage rates and consult with an experienced loan officer to ensure they’re getting the best rate possible. The Federal Reserve’s monetary policy is the primary driver of mortgage rates, however other economic indicators such as GDP growth, unemployment, inflation and consumer spending can also have an impact. Investor sentiment and housing market trends can also influence mortgage rates. Despite the difficulty in predicting the direction of future mortgage rates, it is wise to take advantage of lower rates when they are available.
This article was contributed on Oct 15, 2023