If investors believe Fed rate increases will succeed in pushing inflation lower, mortgage rates will fall.
Home buyers need not fret over the Federal Reserve’s latest move to restrain inflation. Mortgage rates probably won’t go up much, if at all, and might fall over the next few weeks.
The Fed balances two goals: achieving maximum employment and holding the inflation rate to around 2%. But theTo reduce inflation, the Fed raises short-term interest rates. The idea is that higher interest rates will force businesses and consumers to borrow less. Reduced borrowing causes consumers to spend less and companies to hire fewer workers. In turn, workers stop demanding big raises, and inflation goes down.by five percentage points since March 2022, from about 0.25% to around 5.25%.
That slight difference in rates increased home buyers’ borrowing capacity by thousands of dollars. For example, take a buyer with a monthly budget of $2,000 in principal and interest. With a mortgage rate of 6.6%, that buyer could afford to borrow $313,200. But at 6.43%, the same buyer could afford to borrow $318,700 — a $5,500 increase.
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