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Paul and Sarah Scheper Father-Daughter Team MBA, CSA, CRMP, SRES, EIEIO Phone: 800-662-6784 Blog: www.LoangevityMortgage.com License: NMLS #110538 PaulScheper@Live.com www.SarahScheper.TV |
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September 2022
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Does the Fed Control Mortgage Rates? You might think when the Federal Reserve raises rates, it directly impacts mortgages. This is not the case. Why? Because the Fed can only control short-term rates such as credit cards and auto loans, not long-term rates such as mortgages. So, what does impact mortgage rates and why have mortgage rates stabilized since April 2022? The answer is the outlook for the economy and inflation. Fed rate hikes are intended to cool off inflation, slow economic growth, and slow down the labor market. They do this by raising the Fed Funds Rate. If the Fed can cool inflation, slow down the economy and the unemployment rate ticks up, then long-term rates such as mortgages will move lower – as they have since mid-June when the Fed hiked rates by .75% for the first time since 1994. Additionally, when we think about higher rates, the only way long-term rates like the 10-year note and mortgages move higher, is if the economy can absorb those rate hikes. For example, if the economy was performing strongly and inflation was going to be a long-term problem, long-term rates would already be higher. Currently, the US economy is in a recession and people are accumulating debt. The bond market and long-term rates see this and have resisted moving higher. Bottom line: With the US in a recession and the Fed hiking short-term rates, there is a reasonable chance that home loan rates will continue to slide lower. Although the housing market is slowing, rates are still relatively low, and still a good time to consider homeownership. Source: Mortgage Market Guide | ||||||||||||||||||||||||||||||
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