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Lenders constantly monitor economic activity having to do with the mortgage market because those changes in key economic factors are precisely what cause the fluctuations. These factors interact to determine a rate in the economic cycle to maximize returns from lending activity during both a weak and strong economy. So what factors are they watching?
- The Economy. The strength of the economy itself can cause rates to increase or decrease. Generally speaking, if there is an increase in strength of economy, then mortgage rates tend to follow. The opposite is also true. If the economy takes a downturn, mortgage rates will adjust lower to meet the rate of return.
- Money Supply. Mortgage rate fluctuations are also influenced by government policy. The Federal Reserve is the main component in inflation and controlling interest rates by adjusting the economy’s money supply. Too much inflation causes too much risk, and therefore, lowers purchasing power. To avoid this, the Federal Reserve will step in and purchase a number of Treasury bonds to give money back to the economy. That additional money helps lower the rates substantially.
- Mortgage Market Conditions. It would also make sense that the real estate industry’s demand for mortgages would have a direct effect on mortgage rates. This includes new home construction, sale of those new homes and the inventory of homes on the market. The higher the mortgage demand, the higher the interest rates will climb. And of course, if real estate or building sales decline, the interest rate follows.
In the past few years, we have seen dramatic roller coaster effects on mortgage rates due to the economy’s condition, but it is still a great time to buy. If you’re looking to buy a new home, your first home, or sell your home with a top-rated real estate team, we can help. Just contact us today by clicking here.