How Mortgage Rates Are Effected by the Federal Reserve Monetary Policy
The Federal Reserve, or Fed, plays a large role in how effective and robust the economy at large is. With this in mind, it is easy to understand why the Fed would be interested in how the housing market is doing, especially since this particular area of the economy plays such a huge role in the overall economic health of the country at large. Anyone who doesn't believe this needs only to look back on 2007 and to the effect that the housing crisis had on the rest of the economy.
Most experts expect the Fed to keep things more or less as they are for the near future, which means that interest rates probably won't get much lower. While that may not necessarily be exactly what people were hoping to hear if they had been waiting for the lowest rates possible before purchasing a home, the good news is that rates probably won't increase much in the near future either.
The biggest reason that the Fed has made this decision is because, while the economy is not doing great by any means, it is not doing terrible either. Rather than trying to jumpstart things with dramatic changes, the Federal Reserve has decided to keep things more or less as they are and allow a slow and steady recovery to take place. Coming to this decision requires the Federal Reserve to take into account a number of different factors including mortgage-backed securities, the bond market, both the five year and 10 year treasury yield, and more.
Because mortgage rates have jumped by as much as 1% since just last spring, going from 3.5% to 4.5%, some potential homebuyers may be hesitant to make a purchase, preferring instead to take a wait-and-see approach and hope that rates will drop back down to where they were just a few months ago. Unfortunately, this is probably not going to be the case as house loan rates are expected to stay about where they are for the time being or possibly creep just a little bit higher during the coming months.
Although 1% increase is dramatic, even at 4.5% the average mortgage rate is still at a comfortable level for most first-time homebuyers or individuals that are looking to refinance their homes. One of the biggest reasons for the Fed's decision to keep things as they basically are for the time being is the fact that the number of mortgages has started to flatten out over the last year.