Why Are Interest Rates Going Up?

Why are interest rates going up? My name’s Evan Kaufman, your VA loan originator, here to help explain the recent rise in mortgage interest rates.

So right now, it’s early 2024 and if you recall, over the last few years, we’ve seen interest rates rise dramatically from their all-time lows of 2020, 2021, and early 2022.

But last year, if you remember, the end of ’23, we actually saw some relief, rates came down a bit.

Why?

Because everyone was expecting that hey, inflation’s going to calm down, all of a sudden, the Federal Reserve is going to cut back interest rates to help make sure people are going to keep spending money.

But here’s an adage I’ve noticed in our industry, and mortgage as a whole, and real estate as well, and that is that everyone’s assuming cuts are coming, everything’s going to speed back up because cuts are coming.

They’re coming, they’re coming, they’ve been coming now for a few years, ever since 2020, 2021, when we knew rates were going to hike up, in early ’22 when they started to hike up, everyone was calling for them to start falling late ’22, then early ’23, then end of ’23.

Now here we are beginning of ’24 and rates are looking like they might stay elevated for longer than expected.

Now the reason why for all this is – it comes back to everyone’s assumption that the Federal Reserve is going to lower interest rates in the near future.

However, the Federal Reserve looks at a few key indicators to decide if they’re going to move their mortgage rates.

Now another side note, just because the Federal Reserve lowers their interest rate or raises their interest rate doesn’t mean mortgage rates necessarily go up or down.

While they go closely together, they’re not perfect.

However, for the sake of it, we’re just going to say the Fed lowers rates, we know generally mortgage rates are going to go down, and in reverse, if they raise them, they generally going to go up.

Here’s the deal, everyone assumed that the Fed was going to cut rates a few times in 2024, but inflation data has proven higher than anticipated and jobs have stayed stronger than anticipated, meaning that there’s really no reason for the Federal Reserve to cut interest rates, and now all of a sudden people are starting to realize, ‘Oh, that might not happen.’

So ultimately, rates are staying higher for longer because folks are pushing back their horizon on when they see the Federal Reserve potentially cutting interest rates.

Good news is, we’re lower than where things were towards the third quarter of ’23 – we saw the highest rates that we’ve seen in a long time – they calmed down quite a bit earlier this year.

Man, you could have some really good deals, we’re locking folks in for refinances, for example, VA IRRRL streamline refinances at really good rates.

But now they creep back up because folks are all of a sudden noticing, ‘Oh no, the Federal Reserve might not actually cut those rates for a while because the economic data is doing better than expected.’

One of the grim realities of working in mortgage is that good economic news means that rates generally are going to stay higher and/or higher for longer.

That’s because when things are good, there’s no real reason to cut rates down.

So, keep that in mind and the sad reality is when things are going poorly, generally that’s when rates go down, which can be good for consumers and good for our business.

It’s one of those grim things where it’s like, are you cheering for or bad data and sad with good data?

The reality is we should still be happy with the positive data even if that means you and I happen to be paying more for our mortgages.

Hopefully, things continue to keep moving and doing well, however, I know for some of us it’s still pretty painful and that definitely can be.

Just know that overall here, we need to start seeing inflation data coming down and jobs, they gotta stay kind of the same and not just continuing to grow at the pace they are, if we want to see mortgage rates come down at all.

My name is Evan Kaufman, again, your VA loan originator here, just giving you a mid-market update on what we’ve seen with rates just over the past couple weeks. Take care.