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How the Economy Impacts Mortgage Rates

Noopur Gupta July 25, 2024

How the Economy Impacts Mortgage Rates




As someone who’s thinking about buying or selling a home, you’re probably paying close attention to mortgage rates – and wondering what's ahead.

One thing that can affect mortgage rates is the Federal Funds Rate, which influences how much it costs banks to borrow money from each other. While the Federal Reserve (the Fed) doesn’t directly control mortgage rates, they do control the Federal Funds Rate.

The relationship between the two is why people have been watching closely to see when the Fed might lower the Federal Funds Rate. Whenever they do, that’ll put downward pressure on mortgage rates. The Fed meets next week, and three of the most important metrics they’ll look at as they make their decision are:

  1. The Rate of Inflation
  2. How Many Jobs the Economy Is Adding
  3. The Unemployment Rate

Here’s the latest data on all three.

1. The Rate of Inflation

You’ve probably heard a lot about inflation over the past year or two – and you’ve likely felt it whenever you’ve gone to buy just about anything. That’s because high inflation means prices have been going up quickly.

The Fed has stated its goal is to get the rate of inflation back down to 2%. Right now, it’s still higher than that, but moving in the right direction (see graph below):

2. How Many Jobs the Economy Is Adding

The Fed is also watching how many new jobs are created each month. They want to see job growth slow down consistently before taking any action on the Federal Funds Rate. If fewer jobs are created, it means the economy is still strong but cooling a bit – which is their goal. That appears to be exactly what’s happening now. Inman says:

“. . . the Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously thought and that hiring by private companies was sluggish in June.”

So, while employers are still adding jobs, they’re not adding as many as before. That’s an indicator the economy is slowing down after being overheated for quite some time. This is an encouraging trend for the Fed to see.

3. The Unemployment Rate

The unemployment rate is the percentage of people who want to work but can’t find jobs. So, a low rate means a lot of Americans are employed. That’s a good thing for many people.

But it can also lead to higher inflation because more people working means more spending – which drives up prices. Right now, the unemployment rate is low, but it’s been rising slowly over the past few months (see graph below):

No Caption ReceivedIt may seem harsh, but a consistently rising unemployment rate is something the Fed needs to see before deciding to cut the Federal Funds Rate. That’s because a higher unemployment rate would mean reduced spending, and that would help get inflation back under control.

What Does This Mean Moving Forward?

While mortgage rates are going to continue to be volatile in the days and months ahead, these are signs the economy is headed in the direction the Fed wants to see. But even with that, it’s unlikely they'll cut the Federal Funds Rate when they meet next week. Jerome Powell, Chair of the Federal Reserve, recently said:

“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

Basically, we’re seeing the first signs now, but they need more data and more time to feel confident that this is a consistent trend. Assuming that direction continues, according to the CME FedWatch Tool, experts say there’s a projected 96.1% chance the Fed will lower the Federal Funds Rate at their September meeting.

Remember, the Fed doesn’t directly set mortgage rates. It’s just that whenever they decide to cut the Federal Funds Rate, mortgage rates should respond.

Of course, the timing of when the Fed takes action could change because of new economic reports, world events, and other factors. That’s why it's usually not a good idea to try to time the market.

Bottom Line

Recent economic data may signal that hope is on the horizon for mortgage rates. Let’s connect so you have an expert to keep you up to date on the latest trends and what they mean for you.

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Why Some Homes Sell Faster Than Others Why Some Homes Sell Faster Than Others FacebookTwitterPinterestLinkedIn As you think ahead to your own move, you may have noticed some houses sell within days, while others linger. But why is that? As Redfin says: “. . . today’s housing market has been topsy-turvy since the pandemic. Low inventory (though rising) and high prices have created a strange mix: Some homes are flying off the market, while others sit for weeks.” That may leave you wondering what you should expect when you sell. Let’s break it down and give you some actionable tips on how to make sure your house is one that sells quickly. Homes Are Still Selling Faster Than Pre-Pandemic The first thing you should know is that, in most markets, things have slowed down a little bit. While you may remember how quickly homes sold a few years ago, that’s not what you should expect today. Now that inventory has grown, according to Realtor.com, homes are taking a bit longer to sell in today’s market (see graph below): a graph of a bar chartBut before you get hung up on the ten-day difference compared to the past few years, Realtor.com will help put this into perspective: “In April, the typical home spent 50 days on the market . . . This marks the 13th straight month of homes taking longer to sell on a year-over-year basis. Still, homes are moving more quickly than they did before the pandemic . . .” By this comparison, if your house does take a little more time to sell this year, it’s not really a concern. It’s actually still faster than the norm. Plus, it gives you a bit more time to find your next home, which is welcome relief when you’re trying to move, too. Just remember, some homes sell in less time than this. Some take even longer. So, what’s the real difference? Why do some homes attract eager buyers almost instantly, while others sit and struggle? It comes down to having the right agent and strategy. Here are a few tips you need to know. 1. Price It Right One of the biggest reasons homes sit on the market is overpricing. Many sellers want to shoot for a higher price, thinking they can lower it later – but that backfires by turning buyers away. What to do: Work with an agent to make sure your house is priced right. They’ll analyze recent comparable sales (what other homes have sold for recently in your area), so you know you’re pricing appropriately for today’s market and what buyers are willing to pay. As Chen Zhao, Economic Research Lead at Redfin, explains: “My advice to sellers is to price your home fairly for the shifting market; you may need to price lower than your initial instinct to sell quickly and avoid giving concessions.” 2. Focus on the First Impression A messy yard or a house that needs paint? It’ll turn buyers off. Since buyers decide within seconds whether they like a home, a good first impression is key. What to do: Outside, clean up your front yard, tidy up your landscaping, power wash walkways, and add fresh mulch. Inside, declutter and depersonalize. And consider minor touch-ups like repainting in a neutral tone. Your agent will offer advice on what to tackle. 3. Strong Marketing & High-Quality Listing Photos If your listing or your photos don’t look professional, you could have trouble drawing in buyers who think you’re trying to cut corners. What to do: Instead, lean on your agent’s skills, expertise, and resources. They’ll help you make sure you have: High-resolution listing photos showing the home in its best light. Detailed descriptions that highlight differentiating features of your house. Your listing on multiple platforms, including major real estate sites and social media. 4. The Location of the Home You may have heard the phrase “location, location, location” when it comes to real estate. And there’s definitely some truth to that. Homes in highly sought-after neighborhoods tend to sell faster. What to do: While you can’t change where your house is located, your agent can highlight the best features of your neighborhood or community in your listing. By showcasing what’s great about your area, they can help draw buyers into what life would look like in your house. Bottom Line Homes that sell quickly don’t necessarily have better features – they have better agents and a better strategy. Are you thinking about selling? Connect with an agent to talk about how to get your home sold quickly and for top dollar.

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