Post by Jake Rasmusson, Master of Science Real Estate, e-Pro, RENE
Many people are aware that interest rates have risen but the questions I am getting most are why are they going up and how long will this last?
Inflation is the main economic factor causing interest rates to rise. Inflation is caused by too many dollars chasing fewer goods and services. The surplus of dollars causes the costs of goods and services to rise. As costs rise the value of the dollar is eroded. As the value of the dollar is eroded, mortgage lenders need to charge a higher interest rate to account for weaker future dollars. So as inflation increases or decreases, mortgage rates will follow along. In general, rates will follow an inverse relationship with the strength of the current and future United State economy. If the economy is going well, rates tend to rise and if it is going poorly, rates tend to decline.
Most people assume the Federal Government controls interest rates. They do not, however, they do control the Fed Funds Rate, which controls short-term interest rates, such as those for credit cards, car, or personal loans. The government will adjust the Fed Funds Rate to control inflation. They will raise the fed funds rates to decrease the number of dollars available for purchase or lower them to increase money available for purchases. The Fed will attempt to limit the number of dollars available for purchases. They would like to prevent to many dollars chasing to few goods.
So how long will rates continue to rise? Unfortunately, rates will continue to rise until inflation has subsided. The Fed has currently raised rates three times this year along with a probable two additional raises in November and December. Most mortgage experts agree that it will be 6-12 months.
Jake Rasmuson is a 1999 graduate of Bishop Union High School, and has a Master’s of Science Real Estate degree from the University of San Diego. He is the Broker at Bishop Real Estate Rasmuson & Associates.