What Is Going on with Mortgage Rates?

Your Real Estate Resource

You may have heardmortgage ratesare going to stay a bit higher for longer than originally expected. And if youre wondering why, the answer lies in the latest economic data. Heres a quick overview of whats happening with mortgage rates and what experts say is ahead.

Economic Factors That Impact Mortgage Rates

When it comes to mortgage rates, things like the job market, the pace of inflation, consumer spending, geopolitical uncertainty, and more all have an impact. Another factor at play is theFederal Reserve(the Fed) and its decisions on monetary policy. And thats what you may be hearing a lot about right now. Heres why.

The Fed decided to start raising the Federal Funds Rate to try to slow down the economy (and inflation) in early 2022. That rate impacts how much it costs banks to borrow money from each other. It doesnt determine mortgage rates, but mortgage rates do respond when this happens. And thats whenmortgage ratesstarted to really climb.

And while theres been a ton of headway seeing inflation come down since then, it still isnt back to where the Fed wants it to be (2%). Thegraph belowshows inflation since the spike in early 2022, and where we are now compared to their target rate:

As the graph shows, were much closer to their goal of 2% inflation than we were in 2022 but were not there yet. Its even inched up a hair over the last 3 months and thats having an impact on the Feds plans. As Sam Khater, Chief Economist atFreddie Mac,explains:

Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.

Basically, long story short, inflation and its impact on the broader economy are going to be key moving forward. As Greg McBride, Chief Financial Analyst atBankrate, says:

Its the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates.Inflation, inflation, inflation thats really the hub on the wheel.

When Will Mortgage Rates Come Down?

Based on current market data, experts think inflation will be more under control and we still may see the Fed lower the Federal Funds Rate this year. Itll just be later than originally expected. As Mike Fratantoni, Chief Economist at theMortgage Bankers Association(MBA),saidin response to theFederal Open Market Committee(FOMC) decision yesterday:

The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut.We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.

In the simplest sense, what this says is thatmortgage ratesshould still come down later this year. But timing can shift as new employment and economic data come in, geopolitical uncertainty remains, and more. This is one of the reasons its usually not a good strategy to try to time the market. An article inBankrategives buyers this advice:

. . .trying to time the market is generally a bad idea. If buying a house is the right move for you now, dont stress about trends or economic outlooks.