Mortgage rates are notoriously difficult to predict. They go up and down based on market sentiment, headlines, and various economic indicators. Here’s a look at what could move the markets this week.
The big economic news comes on Wednesday when the US Department of Labor releases its September inflation report. Inflation jumped at an annual rate of 5.4% in June and July and stood at 5.3% in August.
Economists are debating the significance of these hot readings. Have prices soared just because economic activity from the previous summer came to a halt amid a forced lockdown by the coronavirus? Or are huge stimulus packages driving up prices?
Although the rate of inflation does not determine mortgage rates, the two measures are strongly correlated. Inflation – and the Federal Reserve’s response to rising prices – could be the most important metric for mortgage rates in the coming months.
Economists say that a sustained rise in consumer prices would be accompanied by a change in Fed policy and a hike in mortgage rates, which reached record levels in January.
“The disruptions of supply induced by the pandemic are at the origin of inflation. This should increase mortgage rates, ”says Dick Lepre, senior loan officer at RPM Mortgage.
Calculating mortgage rates is complicated, but here’s a simple rule: The 30-year fixed rate mortgage closely tracks the yield of the 10-year Treasury. When that rate rises, so does the popular 30-year fixed rate mortgage.
Fixed rate mortgage rates 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, the rates are set by the investors who buy your loan. Most US mortgages are packaged in the form of securities and resold to investors. Your lender offers you an interest rate that secondary market investors are willing to pay.