What A Soft Landing May Mean for Mortgage Interest Rates

According to a report this week from the U.S. Department of the Treasury, the U.S. economy may have just achieved a “soft landing”.  Investopedia defines this as “a cyclical slowdown in economic growth that ends without a period of outright recession.”

Capital Group economist Darrell Spence claims what comes next may resemble what happened in 1995, when, following an era of the Federal Reserve raising interest rates, their policy became one where they tinkered. One meeting they would raise or lower their rate by 25 basis points, the next raise them by 75, only to lower them again at the next meeting. If the parallels between then and now continue, we may see the federal funds rate drop into the 4’s or 5’s.

It’s important to note, however, that the unemployment rate in 1995 was higher than now. Low unemployment rates put upward pressure on wages, as companies try to lure employees with more attractive compensation packages. This, in turn, can be inflationary, as companies raise prices to preserve profit and offset increased labor costs.

This is all good news. However, if you’ve been waiting for the return of 2 percent mortgage interest rates before investing in a duplex, triplex or fourplex, you may be waiting a while. The Federal Reserve only drops rates that low when something catastrophic happens. Think banking crisis or pandemic.

I think we all can agree that interest rates in the 4’s, 5’s or even low 6’s are better than those alternatives.