If you’re in the market to buy a home, you’re probably keeping tabs on mortgage rates. They hit record lows during the pandemic, then rose rapidly over the last couple years before recently cooling off again.
What causes all that fluctuation?
There are a few key factors that impact mortgage rates the most.
The Federal Reserve Fights Inflation
The Federal Reserve doesn’t directly set mortgage rates. But when they move the Federal Funds Rate up or down to fight inflation and steer the economy, mortgage rates tend to follow suit. As the Fed raised rates over the past couple years to combat rising inflation, mortgage rates spiked upwards as well.
Luckily, inflation now seems to be slowing and experts predict both it and mortgage rates will fall over 2023. The Fed may even cut rates this year if inflation keeps cooling. Lower rates would be welcome news for homebuyers.
Treasury Bond Yields Signal Rate Changes
Mortgage lenders also look to the 10-Year Treasury bond yield to help set rates. Usually when Treasury yields rise, mortgage rates follow. And vice versa - lower Treasury yields often foreshadow declines in mortgage rates.
Right now, mortgage rates aren’t aligning as closely with Treasury yields as usual. That means there’s room for them to drop more moving forward. Monitoring the bond yields can provide insight into the mortgage rate outlook.
The Federal Reserve has a meeting later this week that could impact Treasury yields and, in turn, mortgage rates. It’s smart to follow these influential indicators if you’re thinking of buying a home soon.
And make sure to have a skilled real estate agent on your side to help navigate any rate fluctuations.
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