Changes in mortgage rates are largely determined by a very specific set of economic indicators. One such indicator is the federal funds rate. This is the interest rate that banks must pay when borrowing money from one another overnight. They often do this to ensure that they’re able to meet the reserves that have been federally mandated. The producer price index (PRI) and the consumer price index (CPI) are also connected to changes in mortgage rates. These two indexes reflect price changes on the products that both producers and consumers buy and they’re directly connected to the rate of inflation. Beyond these major economic indicators, however, there are a few additional factors that mortgage lenders must consider.
Real Estate Markets
If you’re thinking of buying a home for sale in Irvine, keep in mind that certain changes in real estate market activity indicate increasing or waning demand for mortgage loans. A surge in newly planned developments or a marked increase in property sales often mean greater demand for funding and thus, higher mortgage rates. As more all-cash buyers flood the market, however, more homes for sale and more homes being built will not result in any significant increase in the number of mortgage applications submitted. In areas and instances like these, mortgage rates tend to be a bit lower for those who need them, given the far lesser demand for funding assistance.
Government Policy and Money Supply
Fluctuations in mortgage interest rates can also be due to changes in government policy. The Federal Reserve has the greatest hand in changing interest rates, given its continual efforts to curb inflation by strategically altering the available money supply. When inflation is significant due to rapid economic growth, purchasing power can decline and with disastrous consequences. To mitigate this, the Federal Reserve buys treasury bonds on the open market, which effectively adds money to the economy. This additional money ensures that interest rates remain at reasonable and fairly stable levels.
Forecasts of Short and Long-Term Market Performance
Economic conditions are closely studied by mortgage lending institutions in order to gain a better understanding of the likely short and long-term performance of the economy. One of the primary goals of these efforts is to bolster and prepare for times of increased inflation. For instance, lenders know that inflation is an inevitable result of sustained economic growth. When in-depth analysis shows continued economic growth, interest rates may be adjusted to account for current or forthcoming increases in inflation.
For more information or help navigating the home-buying process, give us a call at (714) 454-6304. One of our professional and experienced real estate agents in Irvine can help you find the home of your dreams and explain each stage of the process along the way. Reach out today or check out our inventory online!