September 7, 2023

Factors that Directly Affect the Mortgage Rates and the Decision to Purchase


As we prepare to migrate into the final quarters of 2023, it brings the question to the forefront: What should we expect to see happen in the housing market? While the market can be unpredictable and the number of factors that plays a part in how the market plays out on a large scale can be endless. One of the most discussed factors is, of course, the mortgage rate. The national average for a 30-year fixed mortgage rate seems to find a sweet spot between 7% and 8%. That number is significantly high in comparison to the past few years coming out of the 2020 housing explosion. But, what does it say for home seekers (and sellers) at the moment? What should we expect to see?

Market experts are attempting to forecast the market. Will there be an allowance for wiggle room in the inventory for resale homes and how will new construction fair? It has been relatively tight for both, although new construction permits did see a slight increase in July requests.

While there have been slight wins to report, let's take a second to revisit mortgage rates, because they are a significant factor that plays a part in investors' and owner-occupants decision to invest in a property. 

What Factors Affects The Mortgage Rates?

Mortgage rates play a huge and effective role in the housing market. They directly impact affordability and the accessibility of homeownership. Whether you are buying a home for the first time or adding a new asset to your real estate investment portfolio, mortgage rates affect the process.  The best way to maneuver the murky waters of mortgage rates is to understand what they are and the factors that affect them. A few of those factors include the Federal Reserve, economic conditions, and the creditworthiness of the borrower. No doubt there are other factors, but let's discuss those first.

The Federal Reserves aka The Fed

Most people may not have had a relatively in-depth understanding of the Fed rate until the most recent housing boom. Why? For starters, the most recent housing boom was such an unprecedented occurrence that it brought forward a lot of conversations that may not have been standard household conversations. The housing boom happened amid a time when funds were also being released in such a manner that many individuals were prepared to make capital investments that may otherwise have not been the case. This was simultaneously happening while the market was going through a major economic adjustment.

The Federal Reserve's monetary policy decisions have a direct impact on mortgage rates. By adjusting the federal funds rate, the central bank influences short-term interest rates, which, in turn, affect long-term mortgage rates. When the Federal Reserve raises interest rates to combat inflation or stimulate the economy, mortgage rates tend to increase. This is the explanation of a particular buzzword that caused quite a bit of stir in recent years Fed Hike.

On the other hand, lowering interest rates can lead to a decrease in mortgage rates.

Economic Conditions: Buyer’s or Seller’s Market

Economic conditions are a primary factor in determining the direction of the market. When there is economic growth, low employment, and overall a thriving economic climate, there tends to be a rise in demand for housing loans, which will also trigger a rise in mortgage rates. Conversely, when the market is experiencing economic downturns and recession, there will be a decrease in mortgage rates considering the decrease in the demand for housing loans.

Creditworthiness of Borrowers

Outside of the larger factors that play a part in the mortgage rate, let's scale it down to size. While the overall conditions of the rate being offered may be affected by external factors like The Feds or the economy, the individual creditworthiness of the borrower is just as significant. Lenders assess the credit scores, income stability, debt-to-income ratios, and down payment amounts of borrowers to determine the risk associated with lending. Higher credit scores tend to have access to better lending options than individuals with lower scores. Lower scores tend to garner high mortgage rate offers and in the worst case, loan denials.

NREMG Can Help Make Sense of the Mortgage Rates

Understanding where the market is headed next is imperative when strategizing for the next investment purchase. Also, understanding the factors that play a part in helping to determine the ideal time to invest in the market is just as crucial. 

Mortgage rates are influenced by a multitude of factors, including Federal Reserve policy, economic conditions, and even the borrower's creditworthiness. The good thing is that all of these things when understood can be used to bring investors and owner occupants closer to their real estate intentions. It is also important to note that these factors interact and fluctuate. This means that mortgage rates are a dynamic component of the housing market. Understanding these influences is crucial for borrowers, lenders, and policymakers to make informed decisions and navigate the complexities of the mortgage market effectively.

National Real Estate Management Group is committed to staying atop of the ever-changing market and understanding the trends in the most transparent way to thoroughly educate our clients. Are you looking to dive into the market? Let us assist you in making an informed investment.