How is the economy affecting mortgage rates?

The overall economy is one of the major influences on the direction of mortgage rates. Knowing the aspects of the economy that most heavily influence mortgage rates could allow you to gauge when mortgage rates may fall or rise. 

Since last week’s mortgage rate spike to just over 6.6%, rates have dropped to just over 6.4%. The sudden spike and subsequent drop were both reactions to fluctuations in the U.S. economy. Following news of changes in the economy could help you determine when to apply for a home loan or mortgage refinance. 

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Here are a few of the many economic factors that drive the base mortgage rate.  

Treasuries tend to compete for the same capital that goes into mortgages, typically tying the two together. In short, when Treasury yields fall, mortgage rates tend to follow. Rates can go up when Treasury yields rise, too. Keep in mind that the relationship is directional rather than one-for-one, so mortgage rates don’t necessarily fluctuate in exactly the same way. 

Inflation expectations and current geopolitical tension have raised the Treasury yield in the past week. 

The Federal Reserve Bank meets eight times a year to set interest rates used for borrowing money. It sets rates to increase employment and stabilize inflation. While the Fed does not set rates on mortgages, its decisions influence mortgage rates. When the Fed announces a rate increase, mortgage rates could rise as well, and when it announces reductions, mortgages rates tend to fall accordingly. 

In the next five Fed meetings scheduled for this year, professionals are predicting that the Fed will not cut rates, with a larger number predicting an increase as the year continues. Just over 50.5% of professionals are predicting a rate increase by the final meeting of the year. With rate cuts looking unlikely, mortgage rates reacted by increasing recently. 

Recent geopolitical events like the Iran conflict and oil price increases have both increased inflation in the United States. As we have mentioned in the previous sections, a rise in inflation will affect a number of factors that contribute to the current mortgage rate. 

An easing in the conflict between Iran and the United States could be beneficial to current oil prices and end up lowering current mortgage rates. 

Mortgage rates are volatile, making it difficult to predict their future and where they might end up.  

If inflation rates cool down in the coming months, we may see a surprising and beneficial drop in mortgage rates. However, rates at the moment seem to be in a higher-for-longer period, so it may be a while before we see mortgage rates drop like they did earlier this year.  

If you are looking to gauge where mortgage rates are headed, there is some data that could help.  

The first thing you will want to check regularly is current mortgage rates. On top of seeing current mortgage rates, this will also show you the recent history of rates, potentially giving you an idea of what direction rates are heading. 

You will also want to keep up with the Fed’s rate decisions, especially shortly before it makes its decision. The Fed meets eight times a year, and after its meetings end and it announces its decision, mortgage rates tend to react to its choice. Before its meetings end and a decision is announced, experts will offer predictions on where they think rates are headed. Expert predictions could have a slight effect on rates before the Fed’s official decision. 

The final thing you will want to keep an eye on is world news and understand how it may affect the U.S. economy. 

Of course, predicting mortgage rates is not an exact science, and it is still hard to accurately know where rates are going. 

Mortgage rates change often, while they may see marginal improvements from where they currently are, it is impossible to say for certain in which direction they are headed. 

With inflation and gas prices rising, geopolitical conflicts continuing and the prediction that the Fed will increase rates before the end of the year, it may be a while before we see mortgage rates drop significantly. 

If you are hoping to get a home loan, the best advice is to get a mortgage now in case rates continue to rise. In the case that rates drop after you have your mortgage, you can always refinance your loan to take advantage of the lower rates. Getting a fixed-rate mortgage now could protect you from any future rate increases. 

Start a home loan application today and get a mortgage before rates rise any higher. 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.} 

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