By Luke Mullins
April 30, 2008
Faced with a weak dollar and rising inflation, the Federal Reserve seems done with its aggressive rate-cutting campaign. Here’s how this shift in monetary policy may affect mortgage rates this year:
How have fixed mortgage rates been moving recently?
They’ve climbed. The average 30-year, fixed-rate conforming mortgage increased from 5.91 percent for the week ending March 21 to 6.11 percent for the week ending April 25, according to HSH Associates, but it’s still on the low side by historic standards.
How will the rates change over the next several months?
With several factors pushing interest rates higher?and not much pulling them lower?fixed mortgage rates are likely to increase modestly in the coming months. “They are right around 6 percent now, [and] they are probably going to stay there the first half of this year,” says Gus Faucher, the director of macroeconomics at Moody’s Economy.com. “Then they are going to gradually move higher in the second half of this year.”
Is that because of what the Fed is doing?
No. This upward trend has little to do with monetary policy. The federal funds target rate?the Fed-controlled interest rate that banks charge one another for overnight loans?plays only an indirect role in setting mortgage rates. Instead, the rates are being driven higher by recent developments affecting the yield on 10-year treasury notes, which influences mortgage rates more directly.
See the full article here.
