Why Are Mortgage Rates Rising?

 

There is more than one reason to be concerned about mortgage rates rising. Recent events have impacted the economy, including a shortage of labor, rising inflation, and supply chain disruptions. However, mortgage rates have been moving higher for five straight weeks. So what should you do? Here are a few suggestions:

Inflation is out of control

The Fed's recent massive increases in the money supply have created a roaring inflation debate. Most analysts are ignoring the direct connection between debt and inflation, focusing instead on ties between the two. "Monetarists" fear that the Fed will unintentionally unleash a massive wave of inflation. Inflation has many causes, but the main one is money, and "Keynesian" economists see it as a result of interest rates, slack and "slack" as the primary drivers of inflation. On the other side of the spectrum are the "hawks," who believe that the Fed is keeping interest rates too low, and that it will be extremely difficult to control it.

Regardless of the root cause of inflation, rising mortgage rates are often accompanied by a spike in consumer prices. A recent report from CoreLogic, a financial firm, found that the U.S. inflation rate reached 5% in May, marking the highest 12-month increase since 2008. Although this is significantly above the Federal Reserve's target of 2%, the rate was triggered by the coronavirus pandemic, which created a surplus of savings and a wave of "revenge spending" among consumers.

Supply chain disruptions

Rising mortgage rates and disruptions to supply chains are weighing on the housing market in the US. According to Tom Shapiro, President and CIO of GTIS Partners, the US housing market could be affected by a series of factors, including the impact of higher interest rates. Inflation expectations are expected to increase, while tightening of monetary policy is predicted to add to inflationary pressures. In this article, we'll examine the factors contributing to rising mortgage rates.

The impact of higher interest rates on supply chains varies depending on the size and position of the buyer and supplier. The size, industry sector, and access to capital all play a role in the impact of interest rate increases. While larger firms typically have more funding options, they may still face challenges with higher interest rates. The duration and intensity of these increases, as well as the additional costs, will determine the impact on a company's supply chain.

Labor shortages

While the mortgage market is in a stable state, the demand for workers remains tight, affecting the ability of firms to recruit and retain workers. Several firms noted that staffing shortages were holding back their growth, and three-fourths of 230 business leaders in Texas cited a lack of applicants as a major impediment to hiring. The availability of applicants also worsened over the past month, as more firms turned to direct hires, while some firms cut their costs.

While demand for goods and services is still strong, there are labor shortages across various industries. While hiring enough people in any industry has become increasingly challenging, a few sectors have been particularly hard hit. Travel and tourism industries, including hotels and ski resorts, have reported significant wage increases. Restaurants, on the other hand, are finding it difficult to stay open seven days a week. Regardless of the cause of the labor shortage, the effects of the recession can be felt across the country.

Rising interest rates

If you're paying a mortgage, rising interest rates can be a real drag on your budget. Higher rates force you to pay more for a mortgage, which can lead to missed repayments and spiralling debt. And if you're a renter, rising interest rates may be the perfect opportunity to make the switch to home ownership. So how can you make your mortgage affordable? Read on for tips and advice from real estate investors.

Higher interest rates don't mean that the economy is in trouble. While higher interest rates mean that mortgages cost more, they are actually a sign of increased strength and a stronger economy. That's great news for the economy, but it doesn't necessarily mean that you should buy a home at a higher interest rate. If you have a good housing market, a 5% mortgage rate is a great deal compared to historical comparisons.

Impact on homebuyers

Mortgage rates rising will make buying a home more expensive, but the impact on homebuyers is minimal. Higher rates mean less demand, which hurts sellers, who will have to lower prices to attract buyers. In the near future, mortgage rates will not fall below 3%, but could drop later in the year depending on Federal Reserve policy. The good news is that there will be a period in which rates are lower and home prices will fall.

Although the increased cost of mortgages will put a damper on homebuyers, the housing market may not suffer as much as many people fear. Home prices have already begun to decrease, and Sykes expects this trend to continue. The housing market is already competitive and there is little inventory to slow it down. Keeping your budget in mind is critical when buying a home, so knowing how much you can afford can help alleviate some of the stress.