If you’re getting ready to close on a home or you have a mortgage with a variable interest rate, you may be wondering what causes Wisconsin mortgage rates to fluctuate. It’s a smart question, and we’re glad you asked.
At Capital Credit Union, we pride ourselves on being thoughtful leaders in financial education and literacy. We strive to empower our members so they can make confident and informed financial decisions. So, let’s explore some of the factors that cause Wisconsin mortgage rates to fluctuate.
Federal Reserve Monetary Policy
While the Federal Reserve does not set mortgage rates, its actions do influence them. The Federal Open Market Committee (FOMC) sets a target range for the federal funds rate—this is the interest rate depository institutions charge other depository institutions to borrow money overnight. As the Board of Governors of the Federal Reserve System notes, the federal funds rate triggers a chain of events that impact other rates, including both short- and long-term interest rates.
The FOMC meets eight times a year and announces its decisions on the second day of each meeting. However, back in 2020, the FOMC held two emergency meetings in response to the pandemic. To ease the economic slump the shutdown brought on, the FOMC announced two major rate cuts in March of that year.
There are two main mortgage types: fixed-rate and adjustable-rate. If you opt for a fixed-rate mortgage, your interest will be influenced by the 10-year Treasury yield. Adjustable-rate mortgages (ARMs), on the other hand, have variable interest rates that are based on a margin and index rate.
The index fluctuates with market conditions, while the margin is a percentage determined by your lender. Since ARMs have interest rates that adjust periodically over the life of the loan, they are more likely to be impacted by changes in the federal funds rate than fixed-rate mortgages are.
Considering closing on a home loan? Speak with your lender to determine which mortgage option best fits your individual financial circumstances.
Market Conditions
Market conditions also impact mortgage rates. For example, a strong economy with low unemployment may lead to a booming housing market. With more prospective homebuyers, lenders could increase mortgage rates.
This is because, as with any industry, the mortgage sector is impacted by the forces of supply and demand. When the market is volatile and unemployment rates are high, for instance, the demand for home loans tends to be lower than in a stable economy. As a result, lenders may lower interest rates to attract more borrowers.
Likewise, housing supply also impacts mortgage rates. For example, when there are fewer available homes, mortgage rates may be higher. However, when the supply is high and the demand is low, mortgage rates tend to decrease.
As market conditions shift, mortgage rates tend to adjust accordingly.
Inflation
Back in 1960, the median home value was just under $12,000. When adjusted for inflation in today’s dollars, that same home would cost you roughly $130,000.
Inflation refers to an increase in the price of goods over time, which causes a decline in purchasing power. While the median home value in 1960 may have been around $130,000 in today’s dollars, the current median home value is significantly higher, at over $400,000. Just as inflation causes home values to increase, it also causes mortgage rates to rise.
The Federal Reserve aims to keep the inflation rate around 2 percent over time, and a steady inflation rate can actually be a good thing. While mortgage rates may fall when inflation is low, those falling rates could negatively impact the economy in the long run. For example, if inflation remains stagnant, there may be fewer opportunities to cut interest rates during times of economic hardship.
Regional Economic Trends
Mortgage rates also vary by state and region. Just as national market conditions impact mortgage rates, regional economic trends can influence them as well.
For example, an area experiencing rapid population growth may face a housing shortage. This could cause mortgage rates to increase because the demand is high while the supply is low—something Wisconsin realtors have observed recently.
The regional labor market may also impact mortgage rates. According to the Wisconsin Department of Workforce Development, Wisconsin’s unemployment rate sits at 3.3 percent. This is nearly a full percentage point lower than the national average. A strong regional job market can attract more homebuyers, driving up housing demand and prices. This may result in lenders adjusting mortgage rates or loan terms in that area.
These factors explain why you may see variations from time to time in Wisconsin mortgage rates versus national mortgage rates. Recently, however, Wisconsin mortgage rates have aligned with the national average. The median home value in Wisconsin, meanwhile, is less than what you would find in many other parts of the country.
Of course, Wisconsin mortgage rates also vary by lender. For instance, your community credit union may offer a more competitive interest rate. The reason? Credit unions are not-for-profit cooperative financial institutions. This means our profits are returned to our members in the form of lower interest rates and higher savings yields. Explore our Owning a Home online resource to learn more, and take a look at our current mortgage rates.
Speak with Our Mortgage Team
In the market to buy a home in northeast Wisconsin? Reach out to the lending team at Capital Credit Union. We believe everyone deserves a place to call home. That’s why we’re proud to help individuals and families in our community reach their homeownership goals.
We promise we’ll be by your side through every stage of the homeownership journey, because our members are our neighbors, and we’re ready to welcome you home.
Equal Housing Opportunity. Federally insured by the NCUA. Membership eligibility required. NMLS# 442983.