Keeping inflation under control is key
of ConsumerAffairs
The downward slope in mortgage rates, making a home purchase a little more affordable, reversed course in late September. Rates have been edging higher ever since, even though the Federal Reserve has begun cutting interest rates for the first time in four years.
On Tuesday Donald Trump won the presidential election and on Thursday the Fed cut the the federal funds interest rate the rate banks pay when they borrow money another 0.25%.
Melissa Cohn, regional vice president at William Raveis Mortgage, says last week was pretty eventful.
Theres a lot to unpack, but as far as the real estate market is concerned, the big question is this: What will it all mean, especially for mortgage rates? Cohn said.
Andreis Bergeron, vice president of Sales at Awning.com, a real estate investing firm, says mortgage rates reflect a range of economic indicators, but they're particularly sensitive to inflation, Federal Reserve policies, and fiscal decisions.
As inflation persists, the Federal Reserve often raises interest rates to control economic overheating, Bergeron told ConsumerAffairs. The election period typically brings uncertainty that can shake investor confidence, leading to rate volatility.
The election sent rates higher
And that may be what propelled mortgage rates in the days leading up to the election. Once Donald Trump was declared the winner, mortgage rates continued to climb. Shmuel Shayowitz president and chief lending officer at Approved Funding, says the market reacted to some of Trumps expected policies.
Trump's policies, especially regarding tariffs and immigration, can go both ways, he said. They can increase wages in specific industries but at the same time make low-cost labor scarce. All this is bond unfriendly and bad for mortgage rates.
Mortgage rates are generally linked to the yield on the 10-year Treasury bond. If inflation continues or increases, bond yields will likely remain elevated and so will mortgage rates.
What can a president do?
Is there anything a new administration can do to lower mortgage rates? Not directly, says Jeffrey Ruben, president of WSFS Mortgage for WSFS Bank.
If the new administration can continue efforts to tame inflation, mortgage rates should begin to stabilize and decrease over time, Ruben told us.
Jaye Holman of Holman Finance sees several concrete steps that can have a positive effect on mortgage rates, such as working with Congress to reduce spending and get the deficit under control, a major driver of inflation.
The only thing that produces inflation is printing money, as Milton Friedman often stated. Consider that the rate of return on an investment will need to be marginally higher than the rate of inflation. So with a lower rate of inflation, investors in mortgage-backed securities will be satisfied with a lower mortgage rate. The higher inflation, the higher mortgage rates will be, Holman said.
Inflation has been trending lower in recent months, which is why the Fed has begun easing interest rates. During the campaign, Trump proposed a number of tax cuts and spending priorities that could increase the deficit if not offset by spending cuts. The mortgage experts we consulted all agree that bringing down inflation is the only way mortgage rates will decline.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-11-11 00:31:59
