This week has been one of the most volatile in many years for mortgage interest rates. Monday was one of the worst days in decades for mortgage rates. So what happened?
Friday morning brought out a report showing higher than expected inflation. May’s inflation rate was 8.6%. Inflation is the enemy of interest rates – meaning higher inflation equals higher interest rates. With that, investors began thinking about the Fed raising rates by .75% instead of the .50% that had been expected. On Monday, the market reacted with the expectation that the Fed would definitely move rates by 75 basis points. A basis point is one one-hundredth of a percentage point. This doesn’t mean the actual mortgage rates increased -the Fed doesn’t set mortgage rates. They set the rate that banks can borrower at. However, it does affect how mortgage rates move. Mortgage rates don’t really care whether the Fed increases or cuts it’s rate, they do care if the market changes it’s view of what the Fed will do in the future.
Monday mortgage rates moved into the 6’s which was something no one really expected to see. According to Mortgage New Daily, “the average going rate for the average lender rose from 5.85% to 6.18% on a flawless scenario from Friday to Monday”.
Wednesday the Fed released their statement from this week’s meeting. The bottom line was an increase in the Federal Funds rate of .75%. The last time the Fed raised rates by .75% was November of 1994. Fed Chairman Powell also said there was a chance of another .75% increase in July, but it will depend on incoming data and the evolving outlook on the economy. He wants to see inflation at 2%.
The mortgage market reacted favorably. We saw mortgage rates improve as the day went on. We’ll see what the rest of the week brings but Wednesday ended on a good note for interest rates.
So what does this mean for people wanting to buy homes? Interest rates are higher than they were a week ago, but today helped offset some of the increases from Monday. Many borrowers are paying points to lower their rate. That is definitely an option but you want to consider how long you will be in the home and how long it will take you to recoup the cost of buying your rate down. If you plan to be there long term, it may make sense. The other thing to consider is if we go into a recession, will interest rates drop? That typically happens and if so, could you refinance into a lower rate? If so, you may not want to pay points to lower your rate since you may not keep the mortgage long enough to recoup the inital costs. Talk with your loan officer and figure out the best plan for your situation.
Remember home prices are expected to increase, although hopefully not as crazy as they have been. Interest rates are also expected to increase. So if you are thinking about buying a home, sooner might be better than waiting!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
