The Fed Rate Cut: Why The Mortgage Rate Didn’t Follow
I’ve recently been explaining to many of my clients why mortgage rates didn’t drop after the Federal Reserve cut the fed funds rate by half a percent. It’s a common misunderstanding, so I decided to address it in this week’s Weekly Update!
When the Fed cuts rates, it affects things like credit cards, car loans, and home equity lines—but not directly mortgage rates. Mortgage rates are more closely tied to the bond market, specifically the 10-year Treasury yield. The bond market tends to look ahead, and for months, it had already been anticipating the Fed’s actions, which is why mortgage rates had been dropping before the Fed cut the rate.
Recently, economic data like housing starts and jobless claims came in stronger than expected, signaling that the economy is holding steady. This caused the 10-year Treasury yield to rise again, pushing mortgage rates higher.
For mortgage rates to drop further, a few things need to happen:
- The bond market needs to see weaker economic and labor data.
- The Fed needs to signal they’re willing to take more aggressive steps to support the economy.
- Mortgage spreads (the difference between what lenders charge and what they borrow at) need to improve.
While it might seem confusing, the bond market was ahead of the Fed’s rate cut. The best thing we can do is monitor economic trends and see how they impact rates in the coming months.
If you have any questions or want to discuss your options, feel free to reach out! We can work together to find the right rate and closing cost combo for you and lock in the best deal when the timing is right.
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*One-time float down available on 45-120 day rate locks. Float down must be executed at least 15 days prior to closing and must be at least .125 improvement.
**Must refinance after 6 months from the 1st payment date and within 5 years of the close date. Available for new applications on or after 6/15/2023. Subject to credit and property approval. Additional conditions may apply. Terms are subject to change. “No Lender Fees” only apply to origination charges.
Blog post date: Monday, September 23, 2024
