In this episode, Haley sits down with the guys of After Hours Real Estate to dive into the relationship between mortgage rates and Federal Reserve (Fed) rates, breaking down common misconceptions and exploring how changes in Fed rates impact mortgage rates. Listen to the very end to get some great tips on shopping for rates! Here is the link to the article discussed in the episode.
Key Takeaways:
Fed Rates Explained:
The Federal Reserve sets the federal funds rate, which is the interest rate at which banks lend to each other overnight.
The Fed rate influences short-term interest rates, but it does not directly set mortgage rates.
How Mortgage Rates Work:
Mortgage rates are influenced by a variety of factors, including the bond market, inflation, and overall economic trends.
Lenders use the 10-year Treasury yield as a benchmark to set mortgage rates since most mortgages are held for around a decade before being paid off or refinanced.
Relationship Between Fed Rates and Mortgage Rates:
While the Fed rate affects the cost of borrowing money in the short term, mortgage rates tend to respond more to long-term market trends and economic outlook.
A rise in the Fed rate doesn’t always mean mortgage rates will increase at the same pace or to the same extent.
Factors That Impact Mortgage Rates:
Inflation and market volatility can influence mortgage rates more than changes in the Fed rate.
Supply and demand in the housing market, lender competition, and the borrower’s credit score also play a role.
When the Fed Raises Rates:
Typically, when the Fed raises rates, it signals that they are trying to cool down inflation. This could lead to a slight increase in mortgage rates, but not always immediately.
Conversely, when the Fed lowers rates, mortgage rates may decrease, but again, this depends on broader economic conditions.