But don’t be confident. The mortgage market hasn’t created a surprising shortage in the last two years, and the mortgage rate path remains unpredictable.
The wildcard for this week’s conference is another positive move by the Fed to boost the economy recession.. It could flatten or even lower mortgage rates.
Greg McBride, chief financial analyst at Bankrate, said, “The FRB meeting could lead to lower mortgage rates rather than higher mortgage rates as long-term interest rates respond to growing concerns about a recession. It ’s expensive. ”
Since the beginning of the pandemic, mortgage rates have been disastrous for borrowers. As the economy collapsed, prices were much lower than anyone could have imagined. After that, the recession of the coronavirus ended, inflation Accelerating, prices rose faster than expected.
The Federal Reserve plans to raise interest rates again this week as inflation continues to intensify. Most economists expect an increase of 75 basis points, or three-quarters, but a significant minority of Fed watchers say the central bank can raise interest rates by a full percentage point.
How to Determine Mortgage Interest Rates
To predict where interest rates are heading, it is important to understand how fixed mortgage rates are set.They are Not directly managed by the Fed.. The central bank sets the federal funds rate. Instead, the 30-year mortgage rate relies primarily on the 10-year Treasury yield. This number has bounced back in the last two years, plummeting to 0.52% in August 2020 and rising to 3.49% in June 2022.
What’s next for the Fed? Translate to mortgage?? it’s complicated. Economists say aggressive rate hikes increase the likelihood of a recession. On the surface, higher interest rates and higher inflation seem to lead to higher mortgage rates.
Concerns about a recession, on the other hand, lead to long-term declines in Treasury yields. So if a new round of pessimism exceeds the 10-year yield, mortgage rates could fall again.
Another Financial Arcana to Remember: Most US Mortgages Packaging Sold to investors as mortgage-backed securities, their ever-changing desires also boost mortgage rates. Inflation is another factor. Inflation does not directly determine mortgage rates, but there is a strong correlation between the two indicators.Inflation — and the Fed support To the price increase — It has emerged as an important factor driving mortgage rates.
Spreads bring another wrinkle
Borrowers face even more uncertainty. The usual gap between a 10-year Treasury yield and a 30-year mortgage rate is much larger than usual.
Lawrence Yun, Chief Economist of the National Association of Real Estate Agents, said:
The recent 10-year yield has been around 3%, so borrowers can expect interest rates to be around 4.8%. instead of, Bankrate’s latest national survey The percentage of lenders was 5.76%.
“The mortgage rates and 10-year spreads are very high, well above normal levels,” says Yun.
The wider spread reflects the new uncertainty of the economy. There is a risk of recession. In addition, the 2020 FRB supported the mortgage market by becoming a major buyer of mortgage-backed securities, but is now going backwards.
“This gap is unprecedented except during times of extreme distress,” says Susan Wahter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. “I have never seen such a gap except in 2020 and 2009.”
Why are spreads so dramatic? One explanation is the sharp rise in rates over the last few months.Lender and borrower Fix rate Wider spreads help lenders mitigate some of the risk of committing to a loan that is much lower than future interest rates, weeks before the loan actually ends.
Changes in the situation mean that investors are demanding higher returns when buying mortgage-backed securities, says Mike Fratantoni, chief economist at the Mortgage Banking Association.
“Investors are concerned about whether the risk of holding a mortgage-backed security is compensated,” says Fratantoni. “Interest rate volatility is very high. Treasury yields fluctuate significantly from day to day.”
However, once that interest rate volatility subsides and spreads return to normal levels, mortgage rates will fall slightly.
What you can do
What does this all mean for mortgage borrowers? Some tips:
- Stay flexible. Interest rates have been on the rise over the past year, but haven’t moved linearly. Pay attention to the rate — You may not want to perform that rate lock yet because the rate can drop.
- Negotiate with the seller. From mid-2020 to mid-2022, home prices rose straight and sellers were firmly responsible. Buyers did not have the opportunity to negotiate. But now Housing market is slowingAnd buyers have room to move a little more.
- Buy a loan. By getting at least three mortgage offers, the borrower can save thousands of dollars over the life of the loan. Finding the best deal is especially important when interest rates fluctuate.
- Get your finances in order. The best deal goes to a borrower with a good credit score. Having more cash for your down payment gives you more flexibility in pursuing the most attractive offers.