Mortgage rates may keep rising
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Mortgage Interest Rates, rate cuts March 19th, 2008The Federal Reserve keeps cutting interest rates, but interest rates on mortgage loans aren’t falling. Just the opposite. The chart above, from the front page of today’s Globe, shows the pattern nicely.
The basic reason is that the Fed keeps cutting the price banks pay for short-term loans. But that’s not the money mortgage companies, including banks, use to make mortgage loans. Instead, companies mostly borrow the money from investors. The interest rates they pay those investors determine the rates they charge borrowers.
Right now, mortgage companies are searching hard for investors willing to provide money, which is forcing the companies to offer higher returns, which in turn means they must charge borrowers higher interest rates.
The investors are worried about inflation. They are worried about inflation because the Fed keeps printing money and lending it to banks in a desperate bid to stave off a recession. In other words, the cuts in short-term rates may actually be raising mortgage rates. (One press release in my inbox this afternoon pushes the argument a little too far: “Fed drives up mortgage rates”)
Tags: Mortgage Interest Rates, rate cuts
