Happy new year, friends!

Rates Down As Predicted

Mortgage interest rates finally started falling in November 2022, as I had predicted in my November newsletter. Year over year inflation numbers started to come down, which is great news for mortgage rates. A drop in inflation helps reduce treasury bond yields and treasury bond yields set the basis for mortgage rates.

As the Federal Reserve’s interest rate hikes slow down the economy, we will see more declines in the monthly inflation readings which will cause bond yields to drop and mortgage rates to fall. Look for more follow through on falling mortgage rates over the course of the next six months.

What’s Happening with Prime Rate

Despite the improved inflation numbers, the Fed increased it’s target interest rate, the Fed Funds, again on December 14th. This latest rate increasewas .5% and it took the Fed Funds from 4% to 4.5%. This Fed Funds rate only directly affects one consumer interest rate, the Prime Rate, which is always 3% more than the Fed Funds rate.

Effect of Prime Rate on HELOCs

Prime is now at 7.5%,which affects credit card interest rates and Home Equity Lines of Credit, HELOCs. HELOC rates are now at or slightly above the Prime Rate. Counter intuitively, when the Fed Funds rate increases to slow or reverse inflation, mortgage interest rates usually fall because they are not tied to the Prime Rate.

Mortgage rates are tied to the bond market. If you want to see where mortgage rates are going, look at the 10 Year Treasury bond yield. As thebond yield drops, mortgage rates are dropping as well.

Buyers Jumping Back In

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