Mortgage rates increased for the first time in a month due to concerns about the uncertain future.
The 30-year fixed-rate mortgage averaged 6.62% in the week ending March 13, rising by 11 basis points from the previous week. This rise marked the end of a three-week period during which mortgage rates had been declining.
Markets React to Shifting Tariff News
Investors found themselves grappling with a series of tariff-related developments throughout the week, causing volatility in the markets. From tariffs on Canada and Mexico to threats of increased tariffs on steel and aluminum, uncertainty was rife.
The imposition of tariffs could potentially reverse the Federal Reserve’s efforts to reduce the inflation rate, leading to a possible increase in interest rates.
Federal Reserve’s Stance on the Economy
Amidst the uncertainty surrounding tariff policies, the S&P 500 stock index experienced a 4% decline from March 5 to March 12.
Contrary to expectations, mortgage rates did not drop in response to the stock market’s decline. Mortgage companies appeared more concerned about inflation than stock market fluctuations.
Samir Dedhia, CEO of One Real Mortgage, attributed the week’s increase in mortgage rates to uncertainties surrounding tariffs.
He stated, “If new tariffs lead to increased costs for goods and materials, inflation may remain elevated, prompting the Federal Reserve to adopt a more cautious approach towards rate cuts.”
Federal Reserve Chair Jerome Powell emphasized the uncertainty surrounding tariffs, stating that it was premature to make hasty decisions. He reassured that the economy was stable and did not require immediate intervention.
Powell’s remarks solidified the belief in the market that the Fed would not reduce the federal funds rate on March 19.
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Inflation Concerns Persist
Core inflation decreased to 3.1% in February according to the consumer price index, slightly below economists’ expectations of 3.2%. However, the Federal Reserve relies more on the Personal Consumption Expenditures (PCE) Price Index for inflation assessment, which may not align with the CPI’s decline.
BW senior economist Elizabeth Renter highlighted the rise in inflation expectations and the decline in consumer sentiment due to uncertainties in future policy decisions affecting financial security. The unpredictability makes it challenging for households and businesses to make informed financial decisions.
Taking Proactive Steps
While individuals may not have direct control over inflation or tariffs, prospective home buyers can take steps to prepare. Strategies such as increasing down payment savings, improving credit scores, and reducing credit card balances can help navigate uncertain economic conditions.