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 Wednesday, when the Federal Reserve Open Markets Committee wraps up its July meeting, and Fed Chairman Jerome Powell addresses reporters.
In recent months, the Fed has discussed a “taper” of its economic stimulus should the economic recovery continue to gather momentum. The Fed has been buying $120 billion in Treasury bonds and mortgage-backed securities every month, but a taper would translate to slowing the pace of those purchases.
The Fed doesn’t directly control mortgage rates, and the calculus behind how much you pay for a home loan 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.