If you’re in the home-buying market, you’re probably keeping a close eye on mortgage rates. These rates have been on a wild ride in recent years, hitting historic lows, surging, and now gradually coming back down. But what’s driving these fluctuations?

The answer is rather complicated, as multiple factors influence mortgage rates, however, here are two key factors at play:

  1. Inflation and the Federal Reserve: While the Federal Reserve (Fed) doesn’t directly control mortgage rates, its actions, especially regarding the Federal Funds Rate, have a significant impact. The Fed adjusts the Federal Funds Rate based on various economic indicators, such as inflation and employment rates. When the Fed raises rates to combat inflation, mortgage rates typically rise as well. Conversely, if there are expectations of rate cuts due to moderating inflation, mortgage rates may trend downward. In recent years, the Fed raised rates to address inflation concerns, leading to an increase in mortgage rates. However, experts anticipate a more favorable outlook, with expectations of easing mortgage rates as inflation improves. There’s even speculation about potential rate cuts by the Fed as inflation stabilizes.
  2. The 10-Year Treasury Yield: Mortgage companies often use the 10-Year Treasury Yield as a reference point for setting home loan interest rates. When the yield rises, mortgage rates tend to follow suit, and vice versa. Tracking the direction of the treasury yield provides insights into potential movements in mortgage rates. While historically, the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate has remained consistent, recent trends suggest room for mortgage rates to decrease. Thus, monitoring the trajectory of the treasury yield offers indications about future mortgage rate movements.

In summary, industry experts are closely monitoring their decisions and their ripple effects on the economy. To navigate any shifts in mortgage rates and their implications for your home-buying plans, it’s wise to enlist the support of a knowledgeable team of professionals.