Conventional wisdom holds that when the Federal Reserve raises interest rates, mortgage rates are sure to follow.
Well, not necessarily.
After the Fed raised its key rate by 75 basis points, the average 30-year fixed-rate mortgage rate fell to 5.22% on Thursday, from 5.54% on Wednesday. On Friday, it fell again to 5.13%.
Beyond The rate Set by the Federal Reserve and other central bank actions, mortgage rates are determined by a range of economic factors, including inflation, unemployment and unemployment insurance claims, as well as supply and demand. demand, according to Nest Seekers chief economist Erin Sykes.
“There was a decline in new loan and refinance applications due to the general uncertainty in the economy. To counter this lack of demand, lenders lowered rates slightly, which briefly lowered the national average of a few basis points,” Sykes said.
She added that for individual loans, the rate is affected by the borrowers’ credit score and the amount of their down payment.
Melissa Cohn, regional vice president of William-Raveis Mortgage, said mortgage rates are more closely tied to mortgage-backed securities and Treasury yields than to the federal funds rate, the rate controlled by the Fed that banks charge each other for overnight borrowing.
“Rising federal funds rates are starting to impact the economy and there are signs of economic weakness and a possible recession,” Cohn said. “As a result, bond yields fell and mortgage rates followed.”
Other consumer debt affected by the federal funds rate includes home equity loans, credit cards, auto loans and other consumer and business debt, Cohn said.
Mortgage rates have slowly cooled since hitting 6% in mid-June. Rates have hit record highs during the pandemic, contributing in part to the home shopping and refinancing frenzy of the past two years.
However, a higher mortgage rate could bring the market back to something close to normal. Slowing homebuyers could lead to higher inventories, which have been historically low, as well as less bidding wars and lower prices.
From a brokerage’s perspective, it’s 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.