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The current mortgage rates and how they are changing

Mortgage rates are rising again. Understand why this is happening and how you can prepare for this financial moment!

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by Sabrina Paes

Published on 09/06/2022

The reasons behind mortgage rates rising again

Real estate or property development. Construction business investment concept. Home mortgage loan rate. Coin stack on international banknotes with calculator, house and crane models on the table.
Learn more about the current mortgage rates! Source: Adobe Stock.

The real estate industry in the United States is facing a dramatic period. The world economy was affected by the outbreak of the conflict in Ukraine. This indirectly impacted mortgage rates.

The beginning of 2022 brought major readjustments in mortgage rates, affecting the purchase and sale of homes.

The rates varied and had a slight reduction in June and July. However, this has not increased sales, and many companies in the industry may close.

Money bag with the word Market price and an up arrow with a calculator and wooden houses. The concept of increasing housing prices. Rising rent. Real estate market growth

Home prices are still on the rise in the US

Buying a home is the great American dream. However, inflation, the pandemic and the war in Europe brought a recession and an increase in home prices. Understand better!

Real estate companies have already had to lay off some employees to continue operating. And the trend is not to improve in the coming months, with high inflation.

On September 1st, there was a further increase in the rate from 5.55% on August 25th to 5.66%. To understand what the next events will be, keep reading.

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Why are mortgage rates rising, and what does it mean for you?

Find out how this rise can affect your finances. Source: Adobe Stock.

Mortgage rates fluctuated widely in early 2022 and increased in early September. But all this is not just due to inflation because these rates are influenced by several factors. Check out!

The Federal Reserve and Prime Rate

These factors are directly related to the rise in mortgage rates. After all, the Federal Reserve controls the basic interest rate, and if it is readjusted, it will impact real estate rates.

This happens because companies pass the value on to the final consumer.

In addition, the increase in the basic interest rate will impact the interest rates offered by banks. Because they want to keep the profit margin intact, they also raise mortgage values.

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The bond market

A bond is a type of loan used by large governments as if it were a loan. Interest rates are set along with a strict payment term before maturity.

In the US, the bond market has been predictable and stable, which is very positive.

However, due to inflation, the bonds are falling in value and fluctuating. As mortgage rates do the opposite of the bond market, they are rising.

Mortgage-backed securities

Mortgage-backed securities, or MBS, are also another factor in raising mortgage rates. They are similar to titles. However, the return payments come from the mortgages underlying the security.

When the prices of mortgage-backed securities fall, lenders raise interest rates. And as bonds are down, interest rates are rising.

State of the General Economy

Interest rates are directly impacted by the general state of a country’s economy. Over the years, the US economy has remained stable for the most part. However, it now faces serious swings.

What happens now is that both the economy and the housing market are overheated. Interest rates have increased to try to solve this problem. Therefore, the impact is direct on mortgage rates.

Guaranteed Overnight Financing Rates (SOFR)

This is a way banks use to lend to each other. At the beginning of the pandemic, SOFR was consistently low. However, it began to experience an increase from April onwards.

These are fees that will increase the interest rate in the end because the bank will always keep its profit margin. Thus, the amounts of the increase are passed on to the consumer, which increases the mortgage.

The Constant Maturity Treasury Rate

The Constant Maturity Treasury Rate is a daily measure of Treasury bond yields. It is adopted as a gauge of future costs. Lenders track this rate and adjust mortgage rates based on that.

bear illustration related to the bear market

The current state of the stock market

The world economy has suffered strong consequences from the War in Ukraine. However, are we in a bear market? Find it out!

How will the mortgage market continue to develop in the coming months?

Learn more about how this market will develop! Source: Adobe Stock.

We still don’t know if we’ve reached peak inflation. That’s what might dictate rates for the next few months. If the fear of recession is greater than the fear of inflation, then we can reverse the picture.

However, experts say that for the next few months, the value of mortgage rates should not rise much. But, the fall should not happen so fast either, given the whole scenario behind it.

Generally, rates will be determined based on inflation against Federal Reserve shares. This institution is very active and has already raised the mortgage rate by 75 basis points in July.

By the end of the first half of 2022, the Federal Reserve had achieved a 1.5 percent increase.

This begins to dictate a more aggressive environment of constant increases that can make everything worse and make rates even more volatile.

As we have seen, average fixed-rate mortgage rates rose to 5.81% in July and reached 5.55% in August. But, these values ​​are still 2.86% higher than the same period last year.

Experts from the Mortgage Bankers Association (MBA) estimate a 50% probability of a mild recession in the next 12 months.

If that happens, the baseline could drop by as much as 30 basis points by the end of the year, coming in at 5.2%.

The National Association of Realtors (NAR) chief economist Lawrence Yun points to stability. According to him, the mortgage rate should remain at 5.5% until the end of the year without reductions.

Chief economist Danielle Hale isn’t sure. She points out that mortgage rates can fluctuate between 5.5% and 6%. But she points out that this is hope, not a fait accompli.

Finally, Freddie Mac forecasts a decline in the baseline rate to 5% by the end of 2022. However, for 2023, we could expect a slight increase to 5.1%.

How to prepare for increasing mortgage rates

There’s not much you can do about rising mortgage rates. However, it is important to always be up to date on the country’s economic issues and interest rates.

In addition, if you have acquired a property and are going to face this change, you can think about a loan. Or even in a refinancing. Thus, you guarantee minimal financial health.

However, the recommendation of many is to wait for mortgage rates to fall before investing.

And that should take a while to happen, with not very optimistic forecasts for the coming months and even next year. And remember to be on the lookout for opportunities.

Now, if you want to learn more about the finance market and how to deal with your finances, check out our post below to learn about the different loan types!

Wedding Loan memo and two piggy banks.

Different types of loans available

Are you in need of money? A loan can be the immediate solution you need. Learn about the main types of loan you can take out.

About the author

Sabrina Paes

Content Writer, Copywriter, and Ghostwriter. Content marketing professional with 5 years of experience. Specialist in investment, finance, and technology niche. MBA in Marketing at the University of São Paulo, Brazil. Content Writer by Rock Content, and University of California (UCDAVIS).

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