There is much nonsense being said about mortgage rates. Most of it is self-serving by realtors who use it as a tool to increase sales. These are the facts:

Mortgage interest rates are determined by investor demands for risk-adjusted returns on investment.

A mortgage interest rate has 3 components that rise and fall continuously in the marketplace:

Mortgage interest rate = base rate + inflation premium + default risk premium.

1. Base rate is the riskless rate of return for saving instead of buying by the investor. Foregoing present pleasures for future pleasures has value. Base rate is indicated by the the almost riskless yield (interest rate) on short-term Treasury bills. Why are they riskless? Because their term is for a few days to 26 weeks and they are backed by the US government. The Federal funds rate (= FFR, the rate banks charge each other to borrow overnight so that they can meet their reserve requirements) is a good approximation to this indicator because this is a riskless investment. Why? Because the loans are made for only a few hours.

2. Inflation expectations premium. The investor has to at least keep up with the general level of prices with his/her investment; otherwise, why bother saving and investing at all? This premium is indicated by the almost riskless 10-year Treasury note yield (interest rate). Why are they riskless? Because it is backed by the US government. Why is this a good indicator? Because the typical mortgage lasts for 7 years. Close enough.

3. Default risk premium. This is the price for a potential buyer default on the loan.

Note that
a. Risk premium = mortgage rate - FFR - 10 year Treasury yield
b. Inflation premium = 10 year Treasury yield - FFR

Aside: The above applies to credit card interest rates too except that inflation premium is nil because the loans are short term.

Note from the above analysis that the highly publicized Federal Funds Rate is only one of 3 components that determine mortgage interest rates. The FFR can be low, but if investors think that future inflation will increase, then mortgage rates will increase. If investors think that mortgage defaults will increase, that will also increase mortgage rates. If the government decides to guarantee some mortgages, then the risk premium declines. It is important to note that the Fed's massive increase in money will almost certainly increase inflation when the economy recovers and that will affect home values, prices, and equity. (The Fed's perennial promise to remove sufficient money from the economy after its recovery to prevent inflation is a promise never kept.) The danger of current low interest rates is that they have a future downside. When they increase, as they likely will because of the Fed's great increase in the money supply, they reduce home values and equity as stated above. Conversely, of course, when mortgage rates decrease, home values and equity increase.

Note: Contrary to popular opinion, the FFR is NOT set by the Federal Reserve (= "The Fed" = the U.S. Central Bank). It targets (i.e., tries to influence) the FFR by increasing or decreasing the money supply and HOPES that it will influence the FFR and therefore mortgage rates. Currently, the banks are charging each other LESS than the FFR target, so its decrease by the Fed is useless except for its dubious impact on market psychology.