Conventional wisdom is that when the Federal Reserve raises interest rates, mortgage rates are sure to follow.
Well, not necessary.
After the Fed raised its benchmark rate to a historic 75 basis points, the average rate on 30-year term mortgages fell from 5.54 percent on Wednesday to 5.22 percent on Thursday. On Friday, it again fell to 5.13 per cent.
According to Nest Seekers chief economist Erin Sykes, mortgage rates are determined by a number of economic factors, including inflation, unemployment and jobless claims, and supply and demand, beyond the rate set by the Federal Reserve and other actions by the central bank. ,
“There has been a pullback on new loan and refinance applications due to general uncertainty in the economy. To counter this lack of demand, lenders cut rates slightly, bringing down the national average a few basis points,” Sykes said.
He said that for personal loans, the rate is affected by the credit score of the borrowers and the size of their down payment.
Melissa Cohn, regional vice president at William-Revis Mortgage, said mortgage rates are more closely linked to mortgage-backed securities and Treasury yields than the federal funds rate, the Fed-controlled rate that banks charge each other for overnight borrowing. charge for.
“Higher federal funds rates are starting to impact the economy and are a sign of economic weakness and a possible recession,” Cohn said. “As a result, bond yields have declined and mortgage rates have followed suit.”
Other consumer debt affected by the federal funds rate include home equity loans, credit cards, car loans and other consumer and corporate loans, Cohn explained.
Mortgage rates have been slowly coming down since reaching 6 percent in mid-June. Rates hit record-breaking lows during the pandemic, contributing to the home-buying and refinancing frenzy of the past two years.
However, a higher mortgage rate can bring the market back to normalcy. Slowing home shoppers could lead to more inventory, which has historically been low, as well as a lower bidding war and lower prices.
From a brokerage point of view, this is always a good time to buy.
“Mortgage rates will undoubtedly rise, so now is a great time to lock in a rate and simultaneously capitalize on falling prices,” Sykes said.
Contact Sasha Jones