Spring has officially sprung and we are seeing it in the real estate industry. Current average mortgage interest rates are around 6.7% with some buyers that have higher credit scores obtaining as low as 6.25% fixed rate. Most experts agree that interest rates have leveled out with minimal fluctuation expected in the coming year. We noticed last year that many buyers continued to expect for the interest rates to lower, but instead we saw the Fed hold steady at the higher rates and even raise rates a little more periodically. The consumer banks actually lowered their rates below the Fed rates preemptively due to the strain the higher rates were bringing on issuance of new home loans.
Why does the Fed affect mortgage rates?
The history of the Federal Reserve (Fed) is a long one with several attempts throughout America’s history at centralized banking. The nation’s central bank, the Federal Reserve, was founded in 1913 by President Wilson to help create a more stable financial system. It’s often believed that the Fed directly corelates to mortgage rates, but actually the Fed only indirectly affects the mortgage rates. The purpose of the Federal Reserve is to not just help keep inflation within control, but to also keep an eye on the nation’s job growth.
So, while the Fed may set rate ranges that help commercial banks set their interest rate ranges, it does not directly dictate mortgage rates. Although, it is found that historically the Fed rates and mortgage rates are typically adjusted in unison.
