What Do Fed Rate Cuts Mean to Mortgage Rates?

What Do Fed Rate Cuts Mean to Mortgage Rates?

First off, a rate cut by the Federal Reserve looks almost guaranteed for the meeting on September 18^th. The question now is whether they cut rates .25% or .5%. As usual, this will be dependent on the economic reports that come out between now and September 18th

A question I get frequently is: When the fed drops rates, doesn’t that drop mortgage rates at the same time? The answer is no, because the Fed doesn’t control actual mortgage rates, only the Fed Funds Rate, which is the interest rate banks pay to borrow money from the government. Mortgage rates, like stocks, are always changing based on the news. Mortgage rates have already come down in anticipation of the Fed rate cuts in September and December. As rough as this sounds, for rates to continue to move lower, we need negative economic news like, higher unemployment and a slowdown in consumption (buying things), which will bring down inflation. Why were mortgage rates so low in 2020 and 2021, because the pandemic almost ground the economy to halt.

Many financial gurus now believe the economy is softening and the Fed may have waited too long to lower rates. This change in sentiment can cause big swings in the financial markets due to overreaction to economic news and also cause mortgage rates to have big movements up and down. The next few months should be a little wild given we also have an election in November. So be ready and prepared to take advantage of some good real estate opportunities.

Bryan

Bryan Wallpe  |  Team Lead

NMLS 290807

Mobile (775) 690-9900885 Tahoe Blvd, Office 9

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