Here's why mortgage rates have been falling
It's a tale of two rates today. The first is the federal funds target rate, which is the rate the
The second rate is the average interest rate on a 30-year fixed-rate mortgage, which typically moves in tandem with what the Fed is doing. The key word there is "typically," because over the last month, that rate has dropped from 7.16% to 6.4%, according to the
So, what gives?
If the Fed raises interest rates, what mortgage rates will do kind of depends.
"It depends on what the market outlook for the future of the economy at large is," said
The "market" he's talking about isn't the market for buying and selling houses — it's the market for buying and selling mortgages.
"Most mortgages made in the
When last month's inflation numbers came in better than expected, hedge funds, bond funds and banks across the world said, "Huh, maybe the Fed will slow down its rate hikes now." So they bought a bunch of mortgages while rates were still pretty high, thinking, "Let's get in while homebuyers are still paying that sweet 7%."
But when there's a big surge in investor demand for mortgage bonds, "the price goes up, the rate goes down, and that trickles through to what the homeowners will see," said
And all of a sudden that sweet 7% drops.
If the mere mention of mortgage-backed securities is giving you Great Recession vibes, Curro said this time really should be different. "Now, lending standards have really, really tightened."
It's an open question whether there'll enough investor demand to keep mortgage rates down — especially because one big buyer is out of the market entirely.
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