The Fed Will Keep Doing Its Part to Hold Mortgage Rates Down

Dated: March 18 2021

Views: 466

Money Wise
Clayton Jarvis

Mortgage rates have been flying high in recent weeks, partly because of fears that inflation will start heating up as the economy recovers. But the Federal Reserve isn't worried and will continue to maintain the low-rate environment that contributed to last year's super-cheap mortgages.

Fed Chairman Jerome Powell (pictured) and his fellow central bank policymakers announced on Wednesday that they decided to leave a key interest rate near zero — an all-time low. And, forecasts released at the end of a two-day Fed meeting indicate the rate isn't likely to rise before 2024.

That should mean no additional upward pressure on mortgage rates, which remain historically low despite recent increases. Homebuyers shopping for houses and homeowners considering a refinance will still have opportunities to lock in favorable rates.

Fed officials say they're in no rush to hike interest rates because they want to see more strength in the economy.

"Indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak," the central bank's policy panel said in a statement. "Inflation continues to run below 2%."

At a news conference following the meeting, Powell said the central bank remains wary of COVID-19 as new strains pop up.

"We’re clearly on a good path with cases coming down, but we're not done and I'd hate to see us take our eye off the ball before we actually finish the job," Powell told reporters. He added that the economy is likely to make faster progress toward the Fed's employment and inflation goals — "but we’ll have to see it first."

In addition to keeping its benchmark federal funds rate immobilized for the time being, the Fed also plans to continue buying at least $80 billion in Treasury bonds and $40 billion in mortgage-backed securities each month.

What does this mean for mortgage rates?

Those purchases should be holding down the interest rates on Treasuries, but Treasury yields have been skyrocketing as investors have grown more optimistic about the economy — and more wary of inflation. The yield on the 10-year Treasury note heavily influences the rates on mortgages.

Unlikely the prime rate and other interest rates that are closely tied to what the Fed does, the central bank has only an indirect impact on mortgage rates.

On Wednesday, 10-year Treasury yield reached its highest level since January of last year, but then eased following the Fed's announcement. Further declines would be helpful for home borrowers.

Mortgage rates started the year with a record low, as the average for 30-year fixed-rate loans dropped to 2.65% the first week of January, according to mortgage giant Freddie Mac. But rates have climbed steadily and sharply ever since, and are averaging 3.09% this week, Freddie Mac said on Thursday.

Keep in mind, that's an average — rates below 3% are still out there, if you look for them.

Mortgage rates may keep climbing, despite the Fed's moves

Though the Fed is making all the right moves to help keep mortgage rates low, other factors are pushing them higher. With average rates rising rapidly, borrowers should grab an attractive rate when they see one.

"It’s just possible that rates will fall again. But that currently looks unlikely," writes Peter Warden, editor of The Mortgage Reports. He's recommending that his readers lock a rate now, whether they're looking to close on their loan in seven days or 60 days.

If you're in the market for a mortgage, to buy or refinance a home, gather and compare at least five loan offers to find the best rate available in your area and for a person with your credit score. A few months or even weeks from now, rates may look much less enticing.

Haven't seen your credit score in a while? Today, it's very easy to take a peek at it for free.

And while you're looking for deals, why stop with your mortgage rate? You may be able to save hundreds of dollars a year on your homeowners insurance simply by doing a little more comparison shopping.

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Josiah Ford

Josiah is the founder of JFI Brokerage. He is a very driven individual with over 16 years’ experience in buyer, seller and tenant representation of residential and commercial properties. Josiah has ....

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