Mortgage Rates After the Fed’s Move: A Reality Check for Homebuyers

Introduction to Mortgage Rates

Mortgage rates have been a topic of interest for many, especially with the recent rate cut by the Federal Reserve. Just before the Fed’s rate cut on September 17, mortgage rates had dipped to an almost 11-month low. However, they jumped immediately after the cut and rose to 6.71% within a week. Although they have dipped slightly in recent days to 6.65%, borrowers are still paying roughly 20 basis points more than before the Fed’s cut.

Key Takeaways

• 30-year mortgage rates have moved higher since the Fed’s September rate cut.
• Mortgage rates don’t necessarily follow the interest rate the Fed sets and can rise even when the central bank makes a cut.
• Industry forecasts suggest only gradual rate relief in the coming year, meaning buyers may need to focus on the right home now and refinance later if rates ease.

Why Mortgage Rates Don’t Fall with Fed Cuts

It’s a common assumption that when the Federal Reserve cuts interest rates, mortgage rates should fall. However, the link between the two is not direct. The Fed’s benchmark rate mainly affects short-term borrowing costs, such as credit cards and personal loans, rather than long-term loans like mortgages. Thirty-year fixed mortgage rates are shaped more by the bond market, especially the 10-year Treasury yield, along with factors like inflation expectations, housing demand, and the broader economy.

The Forces Driving Mortgage Rates Higher

Because mortgage rates track the 10-year Treasury yield more closely than the Fed’s short-term rate, the central bank’s quarter-point cut had little direct effect on borrowing costs. Long-term yields like the 10-year Treasury have been rising as markets weigh signs of a cooling job market against stubborn inflation. The Fed is waiting for more data before deciding how quickly, or even whether, to move again. This uncertainty is pushing investors to demand higher returns for holding long-term bonds, which keeps mortgage rates elevated.

Where Experts See Mortgage Rates Heading Next

Most industry experts expect mortgage rates to stay in the mid-6% range through 2025, with a gradual slide toward the low-6s by late 2026. That outlook points to some eventual relief, but not a sharp drop in the near term. As a result, homebuyers may be better off focusing on finding the right home now, with refinancing as an option if rates ease later.

How to Track the Best Mortgage Rates

The national and state averages are provided based on a loan-to-value (LTV) ratio of 80% and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates.

Conclusion

In conclusion, mortgage rates have jumped since the Fed meeting, and it’s essential to understand the factors that drive these rates. While the Fed’s rate cut may not directly impact mortgage rates, other factors like the bond market and inflation expectations play a significant role. Homebuyers should focus on finding the right home now and consider refinancing later if rates ease. By understanding how mortgage rates work and what drives them, borrowers can make more informed decisions about their home purchases.