How Inflation Affects Mortgage Rates: When Will They Drop❓📉

Are you frustrated with mortgage rates in Metro Detroit? Would you like to know why they are so high? More importantly, when will they go down? Let’s review how inflation affects Mortgage Rates, and that will be the key to knowing when they’ll drop. 

Inflation Affects on Mortgage Rates in Metro Detroit | Team Tag It Sold

How Inflation Affects Mortgage Rates in Metro Detroit

Hello Metro Detroit! Have you noticed mortgage rates sticking higher than we thought they would? If you’re scratching your head and wondering why this is happening, we’ll break it down and explain what it means for you, whether you’re buying or selling a home in Metro Detroit. In May, mortgage rates trended down due to the economy starting to cool off. On May 15th, we broke the 7% ceiling. Moving forward, the trick will be to watch the trend patterns to know when to jump back into the housing market before everyone else does. We don’t need a repeat of the “Unicorn Years of 2020-2021″🦄 based on pent-up buyer demand and a shortage of homes for sale. 

How Mortgage Rates are Determined ~ The Key to Predict When They Will Drop🤯

First, to understand how inflation affects mortgage rates, you need to know how rates are determined. Mortgage rates are mainly shaped by the 10-year treasury yield, which sets the baseline. Next, you need to understand the performance of mortgage-backed securities (MBS). The difference between the treasury yield and the MBS performance is called the MBS gap rate, which determines the overall mortgage rate.

Also, the Federal Reserve doesn’t set mortgage rates directly. Its policies and interest rates affect the bond and securities market, which in turn affects the performance of the 10-year Treasury and MBS.  

Lastly, once you understand the trends, you can track and predict where mortgage rates are heading, and I’ll show you how. 

  • Navigating Mortgage Rates ~ Empower Your Move: This blog post reviews last week’s trends and the latest economic news, including economic graph trends. Together, we can work through the prediction of whether rates will go up or down.
  • Today’s mortgage rates: What’s Driving the Change? Every day, I break down the current yield rate, determine the MBS gap rate, and analyze the economic news to see what’s causing the change in mortgage rates, whether up or down. 
Mortgage Rate Calculation | Team Tag It Sold

Why Do Mortgage Rates Go Up and Down?

Mortgage rates can seem mysterious, but they move based on several apparent factors. So, what is influencing the bond and securities market today? 

  • Job Market: More jobs mean people can borrow more, often increasing rates. April unemployment is starting to show that our economy is cooling. Unemployment increased to 3.9%, which is good news for Mortgage Rates. 
  • Spending: When spending increases, rates can increase because we are fueling inflation. Even though we don’t like the higher prices, that hasn’t stopped the spending spree. Retail sales came in hotter than predicted.   
  • Manufacturing PMI: In April, manufacturing declined due to scaled-back purchase orders, showing that the economy is starting to cool. This is another important benchmark for lowering mortgage rates. 
  • PCE ~ The Fed preferred inflation trends (Personal Consumption Expenditures for Goods and Services). It also trended up in April. 
  • Big World Events: Things happening worldwide can make rates go up or down unexpectedly. What is important to note is how Wall Street investors react to world events. Does it shift investing in safer markets like bonds and securities? If the answer is yes, then there will also be a shift down in mortgage rates due to the bond market. 

Let’s Talk About the Elephant in the Room  ~ Inflation in Metro Detroit

Inflation’s effect on mortgage rates has been pretty stubborn. Although it has started to decrease, it’s not trending down to the 2% target the Fed wants it to be. As you can see, inflation trended up until the last interest rate hike of 5.25-5.50% was implemented. The year-end close for Mortgage Rates in 2022 was 6.73%. The mortgage rate base hasn’t gone below 6.70% since then. Investors are not confident in the housing market, and the inflation rate keeps the 10-year treasury higher, and mortgage rates follow. Remember, mortgage rates are tied to Wall Street. 

Inflation up to May 2024 |Team Tag It Sold
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The longer inflation stays above 2%, the more the Fed might keep rates high to manage it. Experts from Freddie Mac and Bankrate say:

It’s the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation — that’s really the hub on the wheel.”

When Will They Drop?

Let’s look into my crystal ball 🔮? The numbers will rule. If the Fed sees a steady decline in inflation, as we get closer to 3% and lower PCE trends, we’ll hopefully see the first interest rate cuts in September. June, July, and August numbers will be critical if we get that rate cut in September. The Fed will cut the rate when the economy needs a boost; for now, it doesn’t. Some additional trends we keep a close 👀 watch are unemployment, manufacturing, CPI, and GDP. Boy, that’s a lot of acronyms 😂 Follow the blog posts to keep up to date. 

Mortgage Rates vs Home Prices

Suppose you’re trying to time the market and buy a new home in Metro Detroit. You will need to determine financially what is better for you. Jump in when home prices have stabilized, knowing you’ll refinance later, or wait until mortgage rates are at the magic number you determined and gamble home prices won’t be higher. I suggest you review both options. You know now what trends to watch regarding mortgage Rates. Now, let’s set you up to track home prices and sold data and unlock your purchasing power—the last step. I’ve prepared a blog post plan for you to track home price trends and sold data, as well as several charts so you can determine your monthly payment. If you have questions, call my 📲248-343-2459, and we can schedule an appointment or a Zoom call. 

Schedule a Buyer’s Consultation 

Boy, that’s a lot to pack in.🤩 Ready to explore the market and find your perfect home? Schedule a Zoom call with me, and we’ll review the sold data, understand your purchasing power and property taxes, and answer your questions and concerns. I’ll share my screen to give you a clear view of the market insights and help you make informed decisions.

Key Takeaway

Now you know how inflation affects mortgage rates. Understanding the factors, particularly inflation and Fed policies, can help you make informed decisions about buying or selling a home in Metro Detroit. 

A good piece of advice is not to wait for the perfect moment based on the economy. Roll up your sleeves and start crunching the numbers. Afterward, if buying or selling a home feels right for your current situation, that is probably the best decision. We know mortgage rates will be lower over time. When interviewing lenders, check into their fees regarding refinancing and work that into your budget. Not only select a lender for today’s rates but find one that is willing to negotiate on refinancing as well. Feel free to reach out if you have questions or need advice about the housing market. I’m here to help make sense of all this for you.

More Help Is 1️⃣ Click Away⤵️

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Pam Sawyer with Metro Detroit Home Experts | Team Tag It Sold

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How Inflation Affects Mortgage Rates: When Will They Drop❓📉
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How Inflation Affects Mortgage Rates: When Will They Drop❓📉
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Discover how inflation affects mortgage rates in Metro Detroit and learn when they are expected to go down. Stay ahead and informed.🏡📉🔍
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Metro Detroit Home Experts | Team Tag It Sold
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