Since the Fed announced its 50 basis point cut, mortgage interest rates have been rising.
In fact, it is 50 basis points higher since the Fed cut the federal funds rate (FFR) by 50 basis points.
While we know that the Fed does not control mortgage interest rates, it seems unusual to see such a disconnect.
But the first important thing to remember here is that the interest rate set by the Fed is a short-term interest rate, and the mortgage rate is a long-term interest rate, also known as the 30-year fixed rate.
So it’s not really about the Fed. However, this is a good reminder that mortgage rate trends never move in a straight line.
Mortgage rates are swinging their way up
If you remember mortgage rates rose from less than 3% to 8% (yes, 8%!), it wasn’t just a straight line.
Just look at my annotated chart Daily Mortgage News As evidence of this, I highlighted all the regressions.
There were days, weeks, and even months when mortgage rates dropped. For example, the 30-year fixed yield rose from about 3% in January 2022 to approximately 6.25% in June of that year.
Mortgage interest rates then “bumped” a bit and dropped to about 5% (rates ranged between 4%) by August of that year.
Does this mean the worst is behind us? no. It certainly didn’t happen. Instead, mortgage rates rebounded and climbed to a new cycle high above 7% by October of that year.
Things were looking pretty bleak until another spike occurred, bringing the 30-year fixed rate down to 5.99% by February 2023.
At that point, things started to look better. This was probably the worst of it. Wrong again!
Mortgage rates changed in March and made the spring home buying season less enjoyable for homebuyers.
Then interest rates got even worse, rising 8% by mid-October, leaving people wondering if double-digit interest rates were the next stop.
This turned out to be the worst of it, despite all the ups and downs along the way.
But it took a while to realize that it was finally behind us. It took false peaks and short-lived valleys to get there.
Mortgage rates are falling now and the same thing is happening
Now that mortgage rates appear to have peaked this cycle (I say show because there is absolutely no guarantee), we have been on a downtrend for about a year.
Interest rates reached their highest levels last October at around 8% before rising lower as inflation fears eased and unemployment began to worsen.
In short, it looked like the overheated economy was losing steam, and interest rates were taking solace.
It only took two months for the 30-year fixed rate to fall from a peak of 8% to about 6.5% last December.
The spring 2024 home buying season looks to be a very good one, at least in terms of prices.
But guess what happened. Yes, you are following now. Mortgage rates rose. once again! What does it give?
Well, similar to the uptrend, there have been economic data releases every month that have triggered a sell-off in bonds, increasing their accompanying yields.
The 10-year bond yield, which tracks mortgage interest rates well, fell to about 3.75% in December, then rose by about a full percentage point by April.
This has sent mortgage rates soaring to about 7.50%, enough to spoil peak home buying season once again.
Then, almost as if on cue, post-spring mortgage interest rates fell to just over 6% in September.
At that time, you could actually get a price starting with the number “4” in certain situations. Rates in the low to moderate category 5 were also very common.
Good economic news destroyed the mortgage rate party
In early September, it looked like the worst was already over, and only then did the upbeat Fed Chairman Powell and the jobs report emerge.
The 50 basis point Fed rate cut didn’t really have much of an impact, given that it was prepared and telegraphed.
But Powell made comments the same day, essentially declaring that the 50 basis point cut was bullish because the economy was in so good shape that it could handle a larger cut without reigniting inflation.
Then came the jobs report just over a week later, which was a big win and enough to push interest rates above 6.50%.
If this sounds like déjà vu, you’re not wrong, and you’re not alone. However, you may be relieved to know that this same thing happened on your way up.
Mortgage rates have not moved in a straight line up, and they will not move in a straight line down. There will be bad days, weeks, and even months along the way.
Despite this, The trend still seems decidedly lower over time. You just have to be patient and focus less on daily life.
Easier said than done If you’re a loan officer or mortgage broker, or a borrower who needs your interest rate to lock or float, know this.
If you have time to wait before buying a home (or refinancing), it may be worth sitting back and waiting as this trend continues to develop.
After all, the federal funds rate is still expected to fall another 150 basis points within a year. They likely won’t continue to cut that much if the economy is still hot.
In short, trends, whether rising or falling interest rates, take time to develop. Minimize. Before long, the chart may resemble a “head and shoulders” pattern sloping down on the right side.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My work experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) homebuyers better navigate the home loan process. Follow me on Twitter for hot takes.
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