What South Shore Homebuyers Should Know About Mortgage Rates

As the spring housing market begins to heat up across the South Shore, many prospective homebuyers are watching interest rates closely. But according to one local mortgage expert, many common assumptions about mortgage rates—particularly their connection to Federal Reserve policy—are often misunderstood.

Vinh Ly, a loan officer with CMG Home Loans, said the Federal Reserve’s benchmark interest rate has only a loose relationship with mortgage rates, despite widespread belief that a Fed rate cut automatically lowers borrowing costs for homebuyers.

“The Fed rate is loosely tied to mortgage rates—very loosely,” Ly said. “When people hear the Fed might cut rates, they assume mortgage rates will drop the same way. That’s not really how it works.”

Instead, Ly said mortgage rates are more closely tied to inflation and to financial indicators such as the 10-year U.S. Treasury bond and mortgage-backed securities. When inflation rises, mortgage rates tend to increase as well. When inflation cools, borrowing costs typically follow.

“If inflation goes up, your rates are going to go up. If inflation goes down, your rates are going to go down,” he said.

Global events can also influence inflation and interest rates. Ly noted that geopolitical conflicts can push energy prices higher, which can ripple through the broader economy.

“One of the major components of the consumer price index is oil,” he said. “If supply tightens because of conflict, prices go up, and that can push interest rates higher.”

While interest rates remain a key concern for buyers, Ly said the South Shore housing market continues to be highly competitive due to limited inventory. Well-priced homes often attract heavy interest shortly after being listed.

“When the right house hits the market, there can be a lot of people trying to see it,” he said.

Because of that competition, Ly advises buyers to prepare their financing well before beginning their home search. That includes getting fully pre-approved by a lender and having documentation reviewed in advance.

“In a tight market, you need to be fully ready to buy,” he said. “When the right house comes up, the window to act is very short.”

Buyers should also work closely with real estate agents to understand comparable home prices before making an offer. Although bidding wars were common in recent years, Ly cautioned against offering more than a property is likely to appraise for unless buyers are prepared to cover the difference themselves.

“You need to look at the comps and understand what the house is really worth,” he said.

Affordability is another challenge facing many buyers. Traditional guidelines once suggested homeowners should spend roughly 30 percent of their income on housing. In today’s market, Ly said that benchmark has shifted significantly.

“It used to be around 30 percent,” he said. “Now it’s more like 40 to 45 percent of gross income for many buyers.”

Because monthly payments can quickly exceed expectations, Ly recommends buyers determine their realistic budget before beginning their home search. Too often, he said, buyers start looking at homes based on price rather than what the monthly payment will actually be.

“Ask what the payment looks like first,” he said. “If you don’t, you might fall in love with a house you really can’t afford.”

Ly also encouraged buyers to speak directly with licensed professionals—such as loan officers and real estate agents—rather than relying solely on online information.

“Websites can be useful, but information online can be outdated or misleading,” he said. “Have a real conversation with professionals before you start the process.”

With the spring market already gaining momentum across the region, preparation remains the most important step for South Shore buyers hoping to successfully compete in today’s housing market.