Deborah Kling
Deborah Kling
Team Leader

2 of the Factors That Impact Mortgage Rates

2 of the Factors That Impact Mortgage Rates

If you’re in the market for a home, chances are you’ve been closely monitoring mortgage rates. In recent years, these rates have experienced record lows, followed by significant increases, and currently, they are showing a slight decline. Have you ever wondered about the reasons behind these fluctuations?

The explanation is intricate, as numerous factors can impact mortgage rates. Here, we’ll explore some of the most influential factors in play.

Inflation and the Federal Reserve

While the Federal Reserve (Fed) doesn’t directly set mortgage rates, its influence is significant. The Fed adjusts the Federal Funds Rate in response to factors such as inflation, the overall economic climate, and employment rates. As these elements shift, mortgage rates typically follow suit. This relationship is elaborated by Business Insider:

The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.

In the past few years, the Federal Reserve raised the Federal Funds Rate in an effort to combat inflation, causing a corresponding increase in mortgage rates. Thankfully, experts anticipate a more favorable outlook for both inflation and mortgage rates throughout the upcoming year. Chief Economist at, Danielle Hale, expresses this positive forecast:

[M]ortgage rates will continue to ease in 2024 as inflation improves . . .

There is ongoing speculation that the Federal Reserve might consider reducing the Fed Funds Rate this year due to a moderation in inflation, even though it has not yet returned to its ideal target.

The 10-Year Treasury Yield

Moreover, mortgage companies assess the 10-year Treasury Yield to determine the interest rates for home loans. When the yield increases, mortgage rates typically follow suit, and conversely, they tend to decrease when the yield drops. This correlation is highlighted by Investopedia:

One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.

Traditionally, there has been a relatively consistent spread between the 10-year Treasury Yield and the 30-year fixed mortgage rate throughout history. However, this pattern has not been as evident in recent times. This discrepancy suggests that there is potential for mortgage rates to decrease. Monitoring the trend of the treasury yield provides experts with insights into the potential direction of future mortgage rates.

Bottom Line

As the upcoming Fed meeting approaches later this week, industry experts will be closely monitoring their decisions and assessing the potential impact on the economy. To effectively navigate any changes in mortgage rates and their implications for your relocation plans, having a team of professionals by your side is advisable.

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2 of the Factors That Impact Mortgage Rates
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