Mortgage Market Volatility: Mortgage Rates Climb as Fed Eyes Another Cut
Mortgage rates increased last fall when the Federal Reserve started cutting interest rates. The central bank is currently preparing to lower benchmark interest rates once more, and there’s a possibility that this will occur again. Expectations regarding the Fed’s next action are already reflected in today’s mortgage rates.
Rate changes in the upcoming weeks may result from a variety of economic data releases that occur between now and the meeting on September 16–17. However, mortgage rates are influenced by a variety of other factors, most notably bond yields, and there is no clear correlation between the Fed’s rate reduction and mortgage rates.
Mortgage Industry Faces Frustration as Clients Wait for Lower Rates
Moments like these can be a frustrating time for workers in the mortgage industry. For the majority of this year, mortgage rates were trapped in the high 6% range, which hindered buyers who were struggling to make ends meet and limited the amount of refinancing activity. They are receiving more calls from potential customers now that rates are finally declining. However, a lot of clients say they would prefer to hold off on making any decisions until September in the hopes that prices will continue to decline.
Oh my gosh, it’s my least favorite thing to hear. I’m like, ‘Well, you know, that’s already priced in.’ Yes, Fed policy determines rates, but it’s really about how the market views Fed policy.
Browse PostsTaylor Sherman, mortgage loan originator at Barrett Financial Group
Why Don’t Mortgage Rates Always Follow Fed Cuts?
Rates on debt linked to the prime rate, such as credit cards and home equity lines of credit, usually decrease shortly after the Fed lowers interest rates. However, rates for typical 30-year fixed mortgages aren’t correlated with prime and frequently don’t change significantly. Mortgage rates can occasionally even rise, as they did last year.
10-year Treasury yields, which fluctuate in reaction to a variety of factors such as market expectations for inflation, future government borrowing, and Fed actions, are the main factor influencing mortgage rates. Rates are also influenced by mortgage spreads, which are the gap between the 10-year yield and current mortgage rates. These spreads change according to market volatility and demand for mortgage bonds, among other variables. CME FedWatch reports that traders presently believe there is an 85% chance of a rate drop in September. Mortgage rates may fluctuate between now and then for a variety of reasons, but those odds are practically built into the rates as of right now.
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