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By Patrick Blennerhassett<\/div><\/div>\n

The federal funds rate, inflation and the consumer prices index all play a role in the complicated equation of mortgage rates. <\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/div>\n

WASHINGTON \u2013 Interest rates are the highest they\u2019ve been since before the Great Recession, but Las Vegas-based mortgage adviser Matt Hennessy said it\u2019s important for people to understand specifically why monthly mortgage payments are where they are right now.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Hennessy said the federal funds rate, which currently sits at 5.25% to 5.50% and sets the rate at which banks lend money to each other, is not the actual marker for mortgage rates and the story is a bit more complicated. The last time the rate was this high was back in 2007.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cWhen the Fed hikes rates this does not have a direct impact on mortgage rates,\u201d Hennessy said. \u201cSome of the misinformation out there is that in the event the Fed hikes rates by a certain percentage that mortgage rates will increase similarly. This couldn\u2019t be further from the truth. However, when the Fed hikes rates it does have a direct impact on certain short-term rates like treasuries, car loans, credit cards or home equity lines of credit.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

The goal of hiking rates \u2014 interest rates bottomed out during the pandemic due to COVID lockdowns and global supply chain issues \u2014 said Hennessy, is to do one thing: curb inflation. The inflation rate hit 9.1% in June 2022, the highest it\u2019s been since the early 1980s, after the U.S. administration injected $5 trillion into the economy to offset the impact of the pandemic. Hennessy said there is an easy way to define this.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cThe simplest definition of inflation is too many dollars chasing too few of goods. When the Fed increases the Federal Funds Rate, they are in essence trying to slow the demand side of the economy by making goods more expensive and less attractive.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

This, in turn, does impact mortgage rates, however not in the direct way many believe, he said.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cInflation is the archenemy of mortgage rates since mortgage bonds pay investors a fixed rate of return over time. Inflation erodes the buying power of your future fixed return because the cost of goods and services has increased, meaning that fixed amount received will purchase less in the future.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Currently, the average rate for a 30-year fixed-rate mortgage, the standard mortgage given to Americans for a single-family home, sits at 6.8%, and the last time it was this high was October of last year, and before that it was back in 2002.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Redfin Economics Research lead Chen Zhao said the latest consumer price index report means mortgage will stay higher for longer as it now seems unlikely the Fed will cut interest rates in the next few months.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cHousing costs are likely to continue going up for the near future, but persistently high mortgage rates and rising supply could cool home-price growth by the end of the year, taking some pressure off costs.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

Hennessy said mortgage rates are not tied to the U.S. government\u2019s 10-year treasury yields \u2014 which are paid by the government as interest for borrowing money via the selling of a bond \u2014 however they are linked. Hennessy said the best way to describe 10-year treasury yields is the amount of debt the government is borrowing to run a deficit.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cThis is why mortgage professionals must follow the trading of mortgage bonds, which are also known as mortgage-backed securities, for accuracy. It\u2019s important to keep in mind that mortgage rates don\u2019t change weekly or daily but rather hourly as the markets take their direction from daily economic reports, data on inflation and statements surrounding the Federal Reserve\u2019s monetary policy.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

The Federal Reserve has stated it\u2019s intended goal with inflation, to get it down to 2% \u2014 it\u2019s currently at 3.1% \u2014 and then lowering the funds rate. However, Hennessy said it\u2019s too early to tell if Americans can expect cuts to the funds rate this year, and the latest data does not look good.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u201cInflation was hotter than expected in March, continuing a trend we\u2019ve seen in recent months, as rising energy and shelter costs added to pricing pressure,\u201d he said. \u201cWhile annual inflation still remains well below the peaks seen in 2022, these stubbornly high inflation readings could delay the Fed\u2019s timing for rate cuts this year.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n

\u00a9 2024 Las Vegas Review-Journal. Distributed by Tribune Content Agency, LLC.<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/div><\/div>\n

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\nAuthor: amyc<\/p>\n","protected":false},"excerpt":{"rendered":"