Ever since the Fed announced its 50 basis point rate cut, mortgage rates have been rising.
In fact, they are 50 bps higher as the Fed cut its federal funds rate (FFR) 50 bps lower.
Although we know that the Fed does not control loan rates, it seems rare to see such a cut.
But the first important thing to remember here is that the Fed rate is short-term, and the mortgage rate is a long-term rate, called a 30-year fixed.
So it’s not really about the Fed. However, this is a good reminder that mortgage trends never go in a straight line.
Real Estate Mortgage Rates In God’s Hands
If you remember the rise in mortgage rates from sub-3% to 8% (yes, 8%!), it wasn’t just a straight line.
Just look at my annotated chart from Mortgage News Daily for proof of this, where I’ve highlighted all the pullbacks.
There were days, weeks, and even months when mortgage rates dropped. For example, the 30-year rate rose from about 3% in January 2022 to about 6.25% that June.
Then the loan rates “consolidated” a bit and dropped to 5% (quotes in the high-4%) range that August.
Does that mean the worst is behind us? No. It never did. Instead, mortgage rates rose again and rose to a new all-time high of over 7% that October.
Things looked bleak until another rally, which sent the 30-year yield back down to 5.99% in February 2023.
By then, things were starting to get better. Maybe that was too bad. It’s wrong again!
Mortgage rates took a hit in March and made the spring home buying season even more exciting for home buyers.
Then prices got even worse, rising north of 8% in mid-October and prompting people to question whether double-digit prices were the next stop.
Turns out that was pretty bad, despite all the headaches and twists and turns along the way.
But it took some time to realize that it was finally behind us. And it took some false peaks and temporary valleys to get there.
Mortgage Rates Are Going Down Now And The Same Thing Is Happening
Now that mortgage rates seem to have peaked in this cycle (I say peaked because there’s never been a guarantee), we’re in for a down year.
Prices rose last October by nearly 8% before falling as inflation concerns eased and unemployment worsened.
In short, an overheated economy appears to be losing steam, and interest rates are taking comfort in that.
It took just two short months for the 30-year fixed rate to drop from that 8% rate to around 6.5% last December.
And it looked like the spring 2024 home buying season was going to be pretty good, at least by standards.
But guess what happened. Yes, you are catching up now. Mortgage rates have increased. Again! What gives?
However, similar to the upward trend, there was economic data released each month that led to bond sales, increasing their corresponding yields.
The yield on the 10-year bond, which closely tracks mortgage rates, fell to around 3.75% in December, then rose by almost a full percentage point in April.
That sent mortgage rates back up to around 7.50%, enough to destroy another period of high home buying.
It looked like it was close, with mortgage rates falling after the spring to over 6% in September.
Meanwhile, you may get a rating starting with “4” in some cases. And prices in the low to mid 5s were also normal.
Good Economic News Spoils the Mortgage Rate Party
By early September, it seemed that the worst was over, and that’s when the highly optimistic Fed chairman Powell and the jobs report came out.
The Fed’s 50-basis rate hike didn’t have much of an impact, as it was baked in and telegraphed.
But Powell made comments on the same day, essentially announcing that the 50-bps cut was bullish because the economy was in a good position to deal with big cuts without reining in inflation.
Then came the jobs report a week later, which was a big beat and enough to push prices up more than 6.50%.
If it feels like déjà vu, you’re not wrong, and you’re not alone. However, you may take comfort in knowing that the same thing happens during the climb.
Mortgage rates did not go in a straight line up, and they will not go in a straight line down. There will be bad days, weeks, and even months along the way.
Despite this, the trend still feels decidedly lower over time. You have to be patient and focus a little day by day.
Easier said than done if you’re a loan officer or a real estate agent, or a borrower who needs to lock or float your rate, I know.
If you have time to wait before buying a home (or refinancing), it may pay to wait for the process to continue to develop.
After all, the fed funds rate is still expected to decline by another 150 bps during the year. And there is a good chance that they would not have continued to shrink so much if the economy had continued to burn.
In short, trends, whether uptrends or downtrends, take time to develop. Reverse the image. Before long, the chart may resemble a “head and shoulders” pattern descending to the right.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
Source link
