The mortgage industry has been closely following the recent decision made by the Federal Reserve (Fed) to raise the interest rates. The Fed’s action to slow down the pace of increases sends a clear message that the central bank is seeing progress in its battle with inflation. This article provides an in-depth analysis of the current state of mortgage rates and what it means for homebuyers and homeowners.

How the Fed Influences Mortgage Rates

The Fed does not set the interest rates directly, but its actions do have an impact on them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which is influenced by the Fed’s actions, expectations, and investors’ reactions. When Treasury yields go up, so do mortgage rates, and when they go down, mortgage rates tend to follow.

“The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates, are a function of market expectations for the path of the economy and investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.” –  Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. 

 

Expert Predictions for February

According to Rick Sharga, Executive Vice President of Market Intelligence for ATTOM, “unless the Fed unexpectedly raises the Fed Funds rate dramatically at its next meeting, or we get a surprisingly bad inflation report, it seems most likely that mortgage rates will plateau or perhaps decline slightly.” Sharga expects rates to average between 6.0% and 6.25% for the 30-year mortgage and between 5.25% and 5.50% for the 15-year mortgage loan in February.”

Nadia Evangelou, Senior Economist and Director of Real Estate Research for the National Association of Realtors, also predicts a continued downward trend in mortgage rates for February. 

What the Market Thinks

After the recent Fed meeting, Chairman Jerome Powell acknowledged that the US has made progress on inflation, but stopped short of saying that inflation was tamed. 

A word from our friends at Fairway Mortgage

“The Fed raised the fed funds rate by .25% as expected.  We knew this – lately we always know this going in. What markets were interested in was the Fed statement and Fed Chair Jerome Powell’s statement and subsequent press conference. Right now mortgage bonds and treasuries are rallying (mortgage rates are getting better) and stocks are rallying on the news.” – Corey Freels 

Powell’s comments and the market’s reaction indicate that the market believes inflation is cooling, which means mortgage rates are coming down.

 

In conclusion, the recent Fed decision to raise interest rates has had a positive impact on the mortgage industry, with experts predicting continued downward trends in mortgage rates. Homebuyers and homeowners should keep an eye on the market and consider taking advantage of these favorable conditions while they last.