The Fed met this week and as expected, did not raise interest rates. This was the first meeting they didn’t raise rates after 10 straight increases. What does all this mean for mortgage rates?
The Fed doesn’t set mortgage interest rates. Mortgage rates hinge on several factors, but what the Fed does can affect rates. The Fed decided to leave rates alone this month so they can assess additional information and how it affects monetary policy. They are watching inflation reports and employment numbers. The Fed is keeping it’s options open for future rate increases, maybe two more this year. However depending on who you talk to, many do not expect the Fed to actually increase rates again. Some of the Fed governors want the option as they are concerned about inflation. Their goal is to see inflation at 2% and it’s getting closer but it’s still not there. Just threatening future rate hikes will help to slow economic activity and that should help with inflation.
Since the Fed announcement yesterday, the mortgage bond rates have been all over the place! Immediately after the meeting the bond market dropped (bad for rates), then it improved by the end of the day. Today it opened down and has improved. There is a lot of speculation by investors about if or when a recession is coming, if the Fed will actually be able to fight inflation and so it may be awhile before we see mortgage rates get better. If we see employment numbers get worse, it will help the mortgage rates.
So what to expect? Rates aren’t ready to move down yet – if we see signs of a weaker economy and labor market, rates may improve a bit. If we don’t see those signs, markets believe the Fed will raise rates again and mortgage rates will move higher.
The reality is home prices are not dropping, mortgage rates are still expected to drop in 2024 but until then, buying a home is still a good thing. If you buy now, you can always refinance to a lower rate and that will help you. We are still offering a buy now, refi later without any lender fees (saving you the cost of underwriting and processing). Because of that we are discussing with buyers whether or not to pay any points when they buy their home. We look at how long it may take to recoup the cost of paying points. Another option is to do a 2-1 buydown – this is paid for by the seller with seller paid closing costs and will lower your rate for two years. The first year the rate is 2% lower (so if you lock at 7%, the first year the rate is 5%), the second year, the rate is 1% lower (so 6% in the same situation). If you refinance before you have used up the money to pay for the buydown, it goes towards your mortgage as a principal reduction so it helps pay for the refinance.
As always, no one really knows for sure what will happen with interest rates, but we do expect them to drop in the next year or so! Feel free to reach out with any questions!
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
