What is Going on with KC Mortgage Rates?

Recent Kansas City real estate headlines report that mortgage rates will stay slightly higher for longer than initially expected. Are you looking to buy a home in the KC area and wondering why rates are elevated? The answer lies in the latest national economic data. The Just Say Home KC real estate team has given a quick overview of current national mortgage rate trends, housing market expert predictions for this year, and what this means for you as a Kansas City homebuyer.

Economic Factors That Impact Mortgage Rates

Aspects like the job market, pace of inflation, consumer spending, geopolitical uncertainty, and more all influence mortgage rates. Another factor at play is the Federal Reserve (the Fed) and its decisions on monetary policy. This is the subject of many current housing headlines and the factor you may be hearing about the most. So, what exactly is going on?

Back in early 2022, the Fed began raising the Federal Funds Rate to try and slow down the economy (and inflation). While this rate does not determine national mortgage rates, it does affect how much it costs banks to borrow from each other. Mortgage rates respond when this happens, meaning early 2022 is when Kansas City mortgage rates started to climb.

There’s been significant headway in decreasing inflation since then, but it still isn't where the Fed wants it to be (2%). Let's look at the graph below to compare inflation from the spike in early 2022 to current rates against the Federal Reserve's target rate:

We’re much closer to the goal of 2% inflation than we were in 2022 – but we’re not there yet. It's even inched up a hair over the last three months, impacting the Fed’s plans. As Sam Khater, Chief Economist at Freddie Mac, explains:

“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.”

In the simplest terms, inflation and its impact on the broader economy will be essential moving forward. As Greg McBride, Chief Financial Analyst at Bankrate, says:

It’s the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation — that’s really the hub on the wheel.”

When Will Kansas City Mortgage Rates Drop?

Based on current housing market data, experts believe inflation will be more under control and we may still see the Fed lower the Federal Funds Rate this year—it will just be later than originally expected. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), said in response to the Federal Open Market Committee (FOMC) decision yesterday:

“The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.

Long story short? Kansas City mortgage rates should come down later this year. However, the timing of this drop can shift as new employment and economic data come in, geopolitical uncertainty remains, and more. This fluctuation is just one of a few reasons it’s usually not a good strategy to try to time the KC housing market. An article in Bankrate gives buyers this advice:

“ . . . trying to time the market is generally a bad idea. If buying a house is the right move for you now, don’t stress about trends or economic outlooks.”

Bottom Line

Do you have questions about what’s happening in the current Kansas City housing market? Are you looking to buy a home in the KC area and want to learn what today's mortgage rates mean for you? The Just Say Home KC buyer's agents have the local knowledge and real estate expertise to help you answer these questions, navigate an uncertain future, and make the best decision for you and your loved ones!

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