Mortgage rates are notoriously difficult to predict. They rise and fall based on market sentiment, headlines and a variety of economic indicators. Here’s a look at what could move markets this week.
The big economic news comes Tuesday, when the U.S. Labor Department releases its inflation report for August. Inflation stood at an annual rate of 8.5 percent in July — close to its loftiest level since the stagflation days of the early 1980s.
With prices running so hot for so long, the Federal Reserve has been forced to act. The Fed has raised interest rates four times this year.
While the rate of inflation doesn’t determine mortgage rates, the two metrics are strongly correlated. Inflation — and the Federal Reserve’s response to rising prices — could be the most important metric driving mortgage rates in the coming months.
The sustained spike in consumer prices has spurred a change in policy from the Fed and a rise in mortgage rates, which reached record lows in January 2021 before rising sharply in early 2022. The Federal Reserve began raising interest rates at its March meeting, and the central bank continues to move aggressively. The Fed raised rates by 0.75 percent in June and again in July.
The calculus behind mortgage rates is complicated, but here’s one easy rule of thumb: The 30-year fixed-rate mortgage closely tracks the 10-year Treasury yield. When that rate goes up, the popular 30-year fixed rate mortgage tends to do the same.
Rates for fixed mortgages are influenced by other factors, such as supply and demand. When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.
Ultimately, rates are set by the investors who buy your loan. Most U.S. mortgages are packaged as securities and resold to investors. Your lender offers you an interest rate that investors on the secondary market are willing to pay.