What impacts Mortgage Rates Anyway?
Rates Today and What to Expect in the Coming Months
Here it is, my crystal ball for the next month. If you’re here, you’re thinking about buying or selling a home in King, Pierce, or Snohomish counties. Right? Well lets see what’s on the horizon, shall we? Ah… I see discussions on mortgage rates. I see.. hope.
Understanding what drives mortgage rates can help you make more informed decisions. Predictions are just that, predications, and while I’m down for that, it really just means looking at what’s here now to see what’s around the corner. Before I share, let’s break down the top five factors that influence mortgage rates and how they might affect you in the months ahead.
1. Federal Reserve Policy
When the Fed changes the federal funds rate, it often leads to shifts in mortgage rates. It doesn’t control them, but rather acts like a compass to point the direction of their movement.
Next month, September 18th, according to Adrian Webb, the Fed is set to lower short term rates by 25 basis points. For buyers and homeowners in our area, this means keeping an eye on the Fed’s decisions is crucial. If the Fed lowers rates, you might see more favorable borrowing conditions, making it a great time to secure a mortgage. On the flip side, if rates go up, it could mean higher costs for new loans.
2. Inflation
My mentor Ed Laine says all the time, “I have never seen a recession when rates didn’t go down.” When inflation rises, it can lead lenders to boost rates to protect their profit margins. This means that if local prices are climbing, your mortgage rates might follow suit. Remember when you learned about checks and balances, well this is that. The balancing act. For both buyers and sellers, inflation can impact how affordable your home purchase or sale becomes. Staying mindful of inflation trends can help you gauge whether now is a good time to act. As of September 2024, the U.S. economy is experiencing moderate inflation at 3.2% annually, down from peak levels but still above historical norms.
3. Economic Data
I took a trip to MOHAI with my family recently, and I’m always impressed with how much industry we have in the Puget Sound Area. From loggers and fishermen to musicians and brilliant tech visionaries, this city is full of grit. How that local economy performs plays a huge role in mortgage rates. Employment rates and GDP growth (a measure of economic expansion) directly impact the housing market. When the economy is booming, demand for credit increases, often pushing rates higher. More jobs= higher rates. It gets tricky when you throw in part time jobs or gig jobs or the actual incomes offered in the jobs. But this is the general formula. Conversely, a slowdown might lead to more attractive rates. As of September 2024, our unemployment rate in the greater Seattle area is 3.4%, showing a year-over-year improvement from 3.6% in September 2023, with continued strong job growth in technology and healthcare despite ongoing labor shortages.
4. Housing Market Conditions
This is where most of us see the role of mortgage rates. In the buying, selling, and renting of properties, the pendulum swing of supply and demand, listing and sold home prices, and time between list and sale. AIf demand for homes is high and inventory is low, rates creep up. A hot market can mean a quicker sale and potentially higher prices. In a cold market, we see lower demand, reduced buyer activity, slower sales, and typically lower home prices. A balanced market could mean more stability in rates and a smoother process for everyone involved. This market is none of the above. In the Seattle market the number of active listings compared to sold shows a conflicted market. High prices, high interest rates, high wait times. This is a market unlike any we’ve seen before. Add in the NAR Settlement and you’re in for a whole lot more uncertainty. And it’s perhaps why it’s more essential than ever to have a great team helping you.
5. Bond Market
Finally, the bond market is where mortgage rates often take their cues. Yields on U.S. Treasury bonds and mortgage-backed securities (MBS) affect the rates lenders offer. When these yields rise, mortgage rates usually do too. As you may imagine, in an election year, especially This election year, there is a lot of uncertainty. Changes in government spending, taxation, and expectations for Federal Reserve interest rate adjustments can all influence investor sentiment and bond market dynamics. Watching bond market trends can give you a heads-up on where rates might be headed, helping you plan your next move. It’s not just a checks and balance, but a whole symphony of things to consider.
Takeaways
Mortgage rates are only one part of the choice you make in buying or selling a home, but they are a big one. The truth is rates are likely to change soon. Knowing what influences mortgage rates helps you anticipate changes in borrowing costs, allowing you to plan and budget effectively. It also enables you to time your purchase or refinance wisely, potentially saving money and aligning with your financial goals.
This month we’ve seen a dip in rates to 5.98% for a 30-year fixed loan. A a cool-down in economic data and growing expectations that the Federal Reserve will lower rates soon is what’s driving the rate. With inflation easing and the Fed likely to make further cuts, it might be a great time to lock in a mortgage rate. However, remember that this could drive home prices and potentially catalyze the bidding wars. Stay informed and make thoughtful decisions about your next move.
Or just give me a call. If you’re ever unsure or need guidance, I’m here to help make the process as smooth as possible. Let’s work together to find your perfect home or get the most out of your sale!
