What Is Going on with Mortgage Rates?

You may have heard mortgage rates are going to stay a bit higher for longer than originally expected. And if you are wondering why, the answer lies in the latest economic data. Here’s a quick overview of what’s happening with mortgage rates and what experts say is ahead.

Economic Factors That Impact Mortgage Rates

When it comes to mortgage rates, things like the job market, the pace of inflation, consumer spending, geopolitical uncertainty, and more all have an impact. Another factor at play is the Federal Reserve and its decisions on monetary policy. And that’s what you may be hearing a lot about right now. Here’s why.

The Fed decided to start raising the Federal Funds Rate to try to slow down the economy (and inflation) in early 2022. That rate impacts how much it costs banks to borrow money from each other. It doesn’t determine mortgage rates, but mortgage rates do respond when this happens. And that’s when mortgage rates started to really climb.

And while there’s been a ton of headway seeing inflation come down since then, it still isn’t back where the Fed wants it to be (2%). The graph below shows inflation since the spike in early 2022, and where we are now compared to their target rate.

As the graph shows, we are much closer to their goal of 2% inflation than we were in 2022. But we are not there yet. It’s even inched up a hair over the last 3 months and that’s having an impact on the Fed’s plans.

When Will Mortgage Rates Come Down?

Based on current market data, experts think inflation will be more under control and we still may see the Fed lower the Federal Funds Rate this year. It’ll just be later than originally expected.

“The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.” (source: Mortgage Bankers Association)

In the simplest sense, what this says is the mortgage rates should still come down later this year. But timing can shift as new employment and economic data come in, geopolitical uncertainty remains, and more. This is one of the reasons it’s usually not a good strategy to try to time the market.