Mortgage rates have been on a roller coaster ride over the last year, with many peaks and valleys. While we aren’t seeing big spikes and drops recently, they still are not leveling off. From July 1st to through the 14th, mortgage rates bounced from 5.7% to 5.3%. They are certainly higher than just a year ago.
So why is this happening? There are three main reasons for the fluctuation. The first is the battle against inflation. The US Federal Reserve has increased the short-term interest rates. Mortgage rates tend to follow the same path as the Fed’s interest rates. Secondly, the Federal Reserve has tightened up on its purchases of mortgage-backed securities (mortgage bonds). According to the article on Realtor.com, “when demand for mortgage bonds falls, prices go down—and mortgage rates rise.” A final reason is a financial one for the lenders. With higher mortgage rates, many folks are not refinancing. A way to counteract that loss in refinancing, is higher mortgage rates. The higher mortgage rates can make up the difference lost from fewer refinances.
If we do go into a recession, chances are good that mortgage rates will drop again. How low? Will they be higher than they are now? Only time will tell.
Read the original article here: https://www.realtor.com/news/trends/why-mortgage-rates-are-all-over-the-place-and-what-theyre-expected-to-do-