Higher demand for bonds causes prices to rise and yields to fall, which usually causes mortgage rates to fall. Since 1976, mortgage interest rates and home price appreciation have had a positive but weak relationship. The average mortgage rate for a 30-year fixed mortgage is 7.20%, more than double the 3.22% level at the beginning of the year. The Federal Reserve began raising its benchmark interest rate in March and then, in June, raised it 75 basis points, the biggest increase since 1994, only to repeat that step again in July and September.
Mortgage loan rates are caught in a tug-of-war between rising inflation and actions by the Federal Reserve to curb inflation, which has indirectly driven up rates. When interest rates rise, reflecting changes in the economy and financial markets, so do mortgage rates and vice versa. So why do we expect home price appreciation to remain strong in the face of these affordability challenges? Because higher mortgage rates and higher interest rates in general have historically been associated with periods of higher economic growth, higher inflation, lower unemployment and higher wage growth. While some housing experts say rates may not rise much this year, others say they will rise even higher, pointing to six consecutive weeks of rate hikes through September.
Mortgage rates would be higher, but lenders are reducing their margins to compete in an environment of rising rates. If conditions are difficult and interest rates are likely to at least stay the same, if they don't increase, it may be wise to set a rate that fits your budget and that seems fair to you. Freddie Mac, the federally authorized mortgage investor, adds the rates of about 80 lenders across the country to obtain weekly national averages. In other words, higher mortgage rates tend to occur along with greater home price appreciation, but this is a weak trend.
In today's environment, adjustable-rate mortgages may be more affordable than fixed-rate mortgages.
