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Topic | News & Politics |
Length | 5m 21s |
Captions | Yes |
Quality | High-Definition |
The Federal Reserve just made your mortgage rates drop – and you’re going to want to know how. Let’s get into it. [The Homebuyer.com doorbell.
Your dog barks.] I’m Dan with Homebuyer.com. We are the mortgage company for first time home buyers. Let’s jump in about The Federal Reserve, what happened at its March 2024 meeting – and why mortgage rates dropped – even though the Fed didn’t make a change – didn’t cut rates.
We have an accompanying article for this story – with charts – and stats – it’s on our website – go there now if you want – the link is pinned as the top comment. Now again: the headline. The Federal Reserve voted to leave the Fed Funds Rate at 5.25 percent after its March 2024 meeting – a 2-day meeting – March 19 and 20 – and when that meeting ended – the first move for mortgage rates was lower.
So, as a refresher – the Federal Reserve is an independent government group – that controls the supply of money – through banks – through businesses – consumers. The Fed’s main job – above all else – is to keep prices stable – which we call – managing inflation. That role was set forth by charter – 110 years ago – in the Federal Reserve Act of 1913 – which established the Federal Reserve System as the United States central bank.
Keeping prices stable can be a challenge – with hundreds of forces affecting prices – that businesses pay for inputs – that you and I pay for everyday items – things like spices – education – eggs. And, the Fed’s main tool – for managing inflation – is an interest rate – called the Fed Funds Rate. The Fed Funds Rate is an interest rate for loans that banks make between one another – that last overnight.
Why banks make overnight loans to each other goes beyond the scope of this discussion but – that rate – the Fed Funds Rate – is the starting point for other rates that are within scope – like charge card rates – home equity lines of credit rates – personal loan rates – and so on. When the Fed changes its Fed Funds Rate, those other rates change, too – in lockstep – which is why your credit card rates – are 5 and quarter points higher compared to what they were during COVID – because since COVID – the Fed has made the Fed Funds Rate five and quarter points higher. And they do that to slow spending – to slow the economy down.
When the Fed raises the Fed Funds Rate – consumers like us – and businesses in the communities – we pay more interest on the money we borrow – which leaves us with free cash left over to spend on goods and services. It’s like tapping the brakes on spending. And, the Fed has tapped those brakes 11 times in the current economic cycle – the Fed Funds Rate was near zero three years ago – now it’s 5 and quarter – all to slow inflation.
But that cycle – of raising rates – it’s over. This month marks the fifth meeting in a row that the Fed voted to not raise rates – which means the Fed is no longer riding the brakes – slowing things down. Instead – we’re coasting – because inflation is tamed.
Remember: 18 months ago, prices were rising more than 9 percent per year. Now we’re under 3 percent. So the big takeaway here: the Federal Reserve doesn’t set mortgage rates and it doesn’t control them.
But the Fed does make an influence on mortgage rates – in a roundabout kind of way – and that’s important – because mortgage rates – like the Fed – respond to inflation. And here’s why. When you pay your mortgage each month, you pay in dollars.
And your lender – they collect your payment in dollars. When there’s inflation, your payments are worth less to your mortgage lender. That’s the definition of inflation – your money losing its value.
So when inflation is rising – like it did – last year – and the year before – mortgage lenders don’t actually want your mortgage – not at today’s rate anyway. Because your future payments will be worth too little – a year from now – 10 years from now – because inflation makes those payments lessvaluable. So – to account for that – mortgage rates go up – they have to – because otherwise – your loan’s below market.
Now. The other side of that – is that when inflation rates are slowing – or expected to slow – mortgage rates can come down. Because now – lenders want your mortgage.
Because it’ll be more valuable than the market. And lenders like that. So, if your lease is ending – and you want to stop renting and start owning – a pullback from inflation is exactly what you want so lenders drop their rates – compete for your mortgage – get you great deals.
Right now is an excellent time to find out how much home you can afford. Now the next Fed meeting is scheduled for the last day of April first day of May and – again – the Fed won’t likely lower its Fed Funds Rate at that time. However – if inflation keeps dropping – and the data warrants it – buyers can expect mortgage rates to at least stay steady to maximize home purchase power.|| [OUTRO] If you like this video, show us!
Click the thumbs up – subscribe – tell us in the comments – and don’t forget we have today’s post-Fed mortgage rates on our website – live and ready to lock. I’m Dan with Homebuyer.com – the mortgage company for first-time home buyers. Happy homebuying.
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