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How does federal debt affect mortgage rates? - from our partners at GMFS

June 21, 2021

Have you ever noticed whose signature is on all money? Well, it is our Treasury Secretary, Janet Yellen.  She is our 1st  female Treasury Secretary.  She also previously served as the Federal Reserve Chair.  She has a history of favoring spending programs. So, how does this apply to the mortgage rates?

The current Fed rate is currently at zero; but, what most people don’t understand is that the Fed rate is different than mortgage rates.  The feds do not control the mortgage rates; however, they do highly influence them by the activity of buying and selling of mortgage backed securities.

Historical data proves that the rise in federal debt results in lower interest rates. The feds efforts to create activity with stimulus packages is resulting in an increase of federal debt because we do not have the means to pay for it. The spending of our new administration will only increase the supply of treasuries to be sold. Rates are likely to bump up slightly higher before resuming to the downward trend.

As a result of the pandemic, there was a significant increase in the number of growing families. Growing families coupled with many working from home created a need for larger homes.  New construction was banned in many states during COVID.  All of these factors, along with low interest rates, have contributed to the housing shortage. We are currently at a record low in housing inventory.

Interest rates are expected to remain favorable! The high demand and the limited supply point to a 6% appreciation in 2021!

Written by Aimia "Mimi" Doucet from GMFS Mortgage

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