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Understanding Mortgage Rates and the FED: Unveiling the Impact of Rate Hikes and Market Uncertainty

Mortgage rates have shown little change since the start of last week but brace yourself for potential fireworks on Wednesday. The Federal Reserve (FED) is expected to raise rates by 25 basis points. However, don’t worry about rates skyrocketing in response, as the market has already factored in this adjustment. What truly matters is the FED’s statement – will it offer hints of a possible future pause or signal the end of rate hikes?

I’m inclined to believe that the FED won’t outright declare an end to rate hikes. Instead, they might emphasize that future decisions will be data dependent. This stance could be beneficial for mortgage-backed security pricing, ultimately leading to more favorable mortgage rates. Typically, mortgage rates run approximately 1.75 to 2% higher than the 10-Year Treasury note. Presently, the 10-Year Treasury stands at 3.87%, indicating that 30-year fixed rates should ideally be below 6% based on historical trading trends.

However, that’s not the case; mortgage rates are currently a full point higher. So, why the disparity? The uncertainty prevailing in the market has prompted investors to anticipate increased volatility. Once the FED signals the end of rate hikes, the gap between Treasury rates and mortgage rates will likely narrow, causing rates to decline.

Keep in mind that we still have a few more months before the FED may consider such a declaration. In the meantime, it’s an opportune moment to consider buying a home. As rates eventually drop, demand will rise, impacting prices as well. Rest assured, I’ll keep you well-informed of any developments in this dynamic landscape!

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