Mortgage Rates: What’s Behind the Numbers?
As the Federal Reserve continues to adjust its interest rate target, many Americans are holding their breath, hoping for a drop in mortgage rates. However, experts warn that this may not happen anytime soon.
The Current State of Mortgage Rates
According to Jordan Jackson, a global market strategist at J.P. Morgan Asset Management, the best-case scenario is that mortgage rates will hover around 6.5% to 7%. This means that homeowners looking for a break on their mortgage rates may be disappointed.
The Fed’s Influence on Mortgage Rates
While the Federal Reserve’s policy decisions can impact mortgage rates, they are more closely tied to long-term borrowing rates for government debt. The 10-year Treasury note yield has been increasing in recent months, which, combined with signals from the market for mortgage-backed securities, determines the rates issued within new mortgages.
The Role of Quantitative Easing
During the pandemic, the Fed employed quantitative easing, buying huge amounts of assets, including mortgage-backed securities, to adjust demand and supply dynamics within the bond market. This technique can reduce the spread between mortgage rates and Treasury yields, leading to cheaper loan terms for home buyers and refinancing opportunities for owners. However, the Fed’s aggressive use of quantitative easing in 2021 may have been ill-advised, according to Matthew Graham, COO of Mortgage News Daily.
The Shift to Quantitative Tightening
In 2022, the Federal Reserve began reducing the balance of its holdings, primarily by allowing assets to mature and “roll-off” its balance sheet. This process, known as quantitative tightening, may add upward pressure on the spread between mortgage rates and Treasury yields. Experts believe this is one of the reasons mortgage rates are still rising.
What’s Next for Mortgage Rates?
As the Federal Reserve continues to manage its mortgage-backed securities portfolio, economists at Fannie Mae predict that mortgage rates will remain high. With the 10-year Treasury note yield on the rise, it’s unlikely that mortgage rates will drop significantly in the near future.
Stay Informed
Stay up-to-date on the latest developments in mortgage rates and the Federal Reserve’s policy decisions. Learn how these changes can impact your financial situation and make informed decisions about your mortgage.
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