How the Federal Reserve Affects Mortgage Rates

The mortgage market has taken a tumble lately as increased rates have caused the market to stall. Not helping the matter is the let down of the mortgage boom mid last year, resulting in housing prices that have stabilized and sales prices that have fallen. In such a time, what affect does the Federal Reserve have on rates? Normally, if the US economy is slowing down, rates will drop to increase activity, the opposite of what appears to be happening.

What the Reserve has done is raise their Federal Funds rate, which reflects how much a lender will have to pay for a loan it buys. When this happened, mortgage rates go up across the board. Though the housing market may be in s slump right now, it does not appear that the economy has followed suit, hence raising the rates. In response to a major decrease of mortgage business, though, the Reserve was able to reduce rates for the first time in months this week. The reprieve will be short lived though, according to most analysts.