Mortgage rates have taken would-be buyers on a ride this year — and it’s only March.
Generally, home buyers can anticipate mortgage rates to move down through the rest of this year as the banking crisis drags on, which could cool down inflation.
But there are bound to be some bumps along the way. Here’s why rates have been bouncing around and where they could end up.
What’s behind the roller coaster ride
After steadily rising last year as a result of the Federal Reserve’s historic campaign to rein in inflation, the average rate for a 30-year fixed-rate mortgage topped out at 7.08% in November, according to Freddie Mac. Then, with economic data suggesting inflation was retreating, the average rate drifted down through January.
But a raft of robust economic reports in February brought concerns that inflation was not cooling as quickly or as much as many had hoped. As a result, after falling to 6.09%, average mortgage rates climbed back up, rising half a percentage point over the month.
Then in March banks began collapsing. That sent rates falling again.
Neither the actions of the Federal Reserve nor the bank failures directly impact mortgage rates. But rates are indirectly impacted by actions that the Fed takes or is expected to take, as well as the health of the broader financial system and any uncertainty that may be percolating.
On Wednesday, the Federal Reserve announced it would raise interest rates by a quarter point as it attempts to fight stubbornly high inflation while taking into account recent risks to financial stability.
While the bank failures made the Fed’s work more complicated, analysts have said that, if contained, the banking meltdown may have actually done some work for the Fed, by bringing down prices without raising interest rates. To that point, the Fed suggested on Wednesday that it may be at the end of its rate hike cycle.
Tighter credit will keep rates higher
Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
Following the Fed’s announcement on Wednesday, bond yields — and the mortgage rates that usually follow them — fell.
But the relationship between mortgage rates and Treasurys has weakened slightly in recent weeks, said Orphe Divounguy, senior economist at Zillow.
“The secondary