Mortgage rates tend to follow the direction of long-term government bond yields, especially the yield on 10-year Treasury notes. Here are some of the key factors that can influence fluctuations in these yields and mortgage rates:
- Federal Reserve policy: When the Fed raises its benchmark federal funds rate, it often leads to higher borrowing costs across the economy, including mortgage rates.On Thursday, the government reported that inflation fell to 3% in October compared with 12 months earlier, according to the Fed's preferred gauge. That was the lowest such level since the spring of 2021.
- Economic growth and inflation: Strong economic growth and rising inflation generally lead to higher mortgage rates, while slower growth and disinflation place downward pressure on rates. inflation fell to 3% in October compared with 12 months earlier, according to the Fed's preferred gauge. That was the lowest such level since the spring of 2021. Great news for current lower interest rates.
- Geopolitical events: Global conflict or political turmoil often spur investors to move money into safe haven assets like Treasury bonds, lowering yields and mortgage rates.
- Investor demand: Strong demand for mortgage-backed securities from investors leads to lower mortgage rates. When demand falls, rates tend to rise.
- Employment trends: A strong job market can fuel economic growth and push rates higher. Conversely, weak hiring data or increased unemployment tend to cause lower yields and rates.
- Housing market trends: When housing demand is high, rates tend to rise as lenders face increased demand for mortgages. But lower demand for homes often correlates with declining mortgage rates.
The takeaway is that mortgage rates shift constantly in response to economic or political factors. Staying informed and timing your purchase to lock in a lower rate can make a huge difference in how much home you can afford.
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