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Why Mortgage Rates Fell Despite Fed’s Raising Rates

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Conventional wisdom holds that when the Federal Reserve raises interest rates, mortgage rates will inevitably follow suit.

Well, not necessarily.

Average 30-year fixed mortgage rates fell from 5.54% on Wednesday to 5.22% on Thursday after the Fed raised its benchmark rate by a historic 75 basis points. On Friday, it fell again to 5.13%.

Beyond rate According to Erin Sykes, chief economist at Nest Seekers, mortgage rates are set by the Federal Reserve and other actions by central banks and are influenced by a variety of economic factors, including inflation, unemployment, unemployment claims, supply and demand. is determined by

“New loan and refinancing applications have slowed due to general economic uncertainty. To address this lack of demand, lenders have cut interest rates slightly, temporarily lowering the national average by a few basis points. We lowered the points,” Sykes said.

She added that for individual loans, interest rates are affected by the borrower’s credit score and down payment amount.

Melissa Cohn, regional vice president of William LaVace Mortgage, said mortgage rates are more closely tied to mortgage-backed securities and government bond yields than federal funds rates.

“Rising federal interest rates are starting to hit the economy, and there are signs of a weakening economy and a possible recession,” Cohn said. “As a result, bond yields have fallen and mortgage rates have followed suit.”

Other consumer debt impacted by federal funds rates include home equity loans, credit cards, auto loans and other consumer and business debt, Cohn explained.

Mortgage rates are slowly cooling after taking a hit 6 percent Mid-June. Interest rates hitting record lows during the pandemic have also contributed to his home shopping and refinancing frenzy over the past two years.

But if mortgage rates rise, the market could get closer to normal. A slower movement of home shoppers could not only increase historically low inventories, but also reduce bidding wars and drive down prices.

From a broker’s perspective, it’s always time to buy.

“Mortgage rates will definitely rise, so now is a great time to lock in rates and take advantage of falling prices at the same time,” Sykes said.

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