Mortgage rates have increased rapidly over the past few weeks as the Federal Reserve gears up for another hike to the federal funds rate at its meeting in September.
So far, a lot of the data has shown an economy that has remained relatively hot in spite of the Fed’s increases. But on Friday, the Bureau of Labor Statistics released August’s jobs report, which showed more moderate growth compared to July’s report.
The Fed is weighing whether another 75-basis-point hike to the federal funds rate is necessary to bring inflation down to an acceptable level. It’s indicated that it will be watching the latest economic data, including labor market data, to inform its decision.
“The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers,” Fed Chair Jerome Powell said in his Aug. 26 speech in Jackson Hole.
As the Fed continues raising rates, mortgage rates are also likely to remain elevated. But this latest jobs report is a sign that the central bank’s actions are starting to work, which will ultimately help bring mortgage rates back down.
Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased significantly so far in 2022. More recently, rates have been relatively volatile.
In the last 12 months, the Consumer Price Index rose by 8.5%. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate three more times this year, following increases in March, May, June, and July.
Though not directly tied to the federal funds rate, mortgage rates are sometimes pushed up as a result of Fed rate hikes and investor expectations of how those hikes will impact the economy.
Inflation remains elevated, but has started to slow, which is a good sign for mortgage rates and the broader economy.
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple of years.
Even with fewer buyers in the market, those who can afford to buy will still be competing over historically low inventory. When there are more buyers than there are houses available, home prices go up. So while conditions may loosen up a bit due to high rates, we aren’t likely to see a significant drop in prices.
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
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