How the Economy Impacts Mortgage Rates

If you’re in the market to buy or sell a home, you’re probably keeping a close eye on mortgage rates and wondering what the future holds. Understanding the factors that influence these rates can help you make informed decisions.

The Fed’s Influence on Mortgage Rates

One key player in this scenario is the Federal Reserve, specifically the Federal Funds Rate they control. Although the Fed doesn’t directly set mortgage rates, the Federal Funds Rate impacts how much it costs banks to borrow money from each other, which in turn affects mortgage rates.

Everyone’s been watching to see if the Fed will lower the Federal Funds Rate, as this typically puts downward pressure on mortgage rates. The Fed’s meeting next week is crucial, and they’ll be considering three main metrics:

1. The Rate of Inflation
2. How Many Jobs the Economy Is Adding
3. The Unemployment Rate

Here’s a closer look at where these metrics currently stand:

1. The Rate of Inflation

Inflation has been a hot topic lately, and you’ve likely noticed it in your everyday purchases. The Fed’s goal is to bring inflation down to 2%. While it’s still above that target, it’s showing signs of improvement.

2. How Many Jobs the Economy Is Adding

Job creation is another critical factor. The Fed wants to see a consistent slowdown in job growth before adjusting the Federal Funds Rate. Recent reports from the Bureau of Labor Statistics indicate that job creation is slowing down, which is a positive sign for the Fed’s objectives. Employers are adding jobs, but at a slower pace, suggesting the economy is cooling off after a period of overheating.

3. The Unemployment Rate

A low unemployment rate is generally positive, but it can contribute to higher inflation due to increased spending. Currently, the unemployment rate is low but has been rising slowly. A higher unemployment rate would indicate reduced spending, helping to control inflation.

What’s Next?

While mortgage rates are expected to remain volatile, these economic trends are moving in the Fed’s desired direction. However, it’s unlikely that the Fed will cut the Federal Funds Rate at their upcoming meeting. Fed Chair Jerome Powell recently emphasized the need for more data and time to confirm a consistent trend toward lower inflation.

Assuming this trend continues, experts predict a 96.1% chance that the Fed will lower the Federal Funds Rate in their September meeting, according to the CME FedWatch Tool. This could eventually lead to lower mortgage rates.

Why Timing the Market Isn’t Wise

The Fed’s actions are influenced by new economic data, global events, and other unpredictable factors. Therefore, trying to time the market based on potential rate changes isn’t usually a good idea.

Bottom Line

Recent economic data suggests a hopeful outlook for mortgage rates. If you’re considering buying or selling a home, it’s essential to stay informed about the latest trends. Let’s connect so you have an expert to guide you through these changes and what they mean for you.