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Why Mortgage Rates Will Continue To Rise
September 28, 2022
Why We Will See Mortgage Rates Continue To Rise
These are just a couple of reasons on why mortgage rates, will continue to increase. Or at least the reasons as to why they should continue to increase. Tomorrow I will write up a blog post on the reasons we could see mortgage rates come down. Then from there I will give you my opinion on what I believe they will do.
Inflation
One of the best ways to fight inflation is to raise Mortgage Interest Rates. In order for this to work Mortgage Rates generally need to be about 1% or more above the current inflation percentage. As of right now (9/28/2022) our government is telling us that the inflation percentage is around 8.5%. So in order for the Mortgage Rates to help fight inflation, at all, the rates would need to be 9.5% or higher. Now 8.5% is what the government is telling us inflation is at. In reality the inflation percentage is much higher than this. What many people don't realize is that back in 1994 the Clinton administration changed how we calculate the Consumer Price Index (CPI). The CPI is how we calculate what the current inflation number is. If we used the same CPI calculations, pre Clinton's presidency, our inflation percentage would actually be around 24% right now. So if we used that number the current Mortgage Rates would have to be around 25% to help fight inflation. A number we haven't come close to seeing since the 1980's.
Federal Reserve
What probably has the biggest impact on Mortgage Rates is the Federal Reserve. Back in December of 2021 the Mortgage Rates got down to a record low of around 2.5%. Pretty much every month from 2018 to the end of 2021 was a new record low for Mortgage Rates, but 2.5% was as low as it got. Now the reason why rates got to be so low is because the Federal Reserve was buying up record amounts of Mortgage Back Securities (MBS). They were buying up to 90 billion dollars a month in Mortgage Backed Securities. Come January 2022 The FED announced that they were no longer going to be buying anymore Mortgage Backed Securities. The FED had to do this in order to help fight inflation and even Colin Powell, Secretary of State, warned everyone that this would cause Interest and Mortgage rates to go up.
Conclusion
The continuing rise of inflation and the federal reserve are just two of the many reasons as to why mortgage rates will, or at least should continue to rise. The Fed has been telling us since the beginning of the year that fighting inflation is their number one agenda. What the government says and what they actually do though a lot of times don't really go hand in hand. For example back in June the Fed started buying up mortgage backed securities again, causing rates to dip for about a month and a half. Now however they are back to not buying them and rates have been going up on average a quarter of a percent weekly. The reason I bring this up is just because it's so hard to predict what the mortgage rates, as well as the real estate market as a whole will do, because we don't exactly know what the government is planning on doing.
