24 Mar Federal Reserve just raised interest rates to banks .25 basis point…what does that mean for mortgage rates?
Federal Reserve just raised interest rates to banks .25 basis point…what does that mean for mortgage rates?
The market determines mortgage rates and while it is influenced by the Federal Reserve and their fiscal policies it doesn’t necessarily go hand and hand.
As an example, the Federal Reserve has continued to raise interest rates to banks that want to borrow from it and we hit 7% mortgages just a little while ago. Then they raised those same rates by another .25 basis points on Wednesday and what did mortgage rates do? They went down to about 5.99% for conventional and 5.5 for FHA/VA.
Why is that?
A number of things come into play. First, if mortgage companies feel the Federal Reserve is getting inflation under control they will be more aggressive with rates. Second, if there are less buyers in the market place and they want to continue to do loans and keep their existing staff then they will price their mortgages more competitively. Third, the gap between what they could borrow money at and give mortgages at was too large of a profit margin in the past (in many people’s opinion) and now those margins are being reduced.
The market also sees that the Federal Reserve is handcuffed to some degree from doing much for future interest rates increases because the pressure it puts on banks, especially regional banks, and the increased possibility of more banks in crisis if rates get too high. This gives the market confidence that rates will stabilize so mortgage companies can provide better mortgage rates.
Where do I see mortgage rates going?
I see rates stabilizing about what you see now for the spring and summer and trending lower for the fall and winter.
Feel free you call me with questions at 612-386-8600.
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