Housing News

The Fed Made Another Rate Cut. Should Homebuyers Expect Lower Mortgage Rates?

For the second time this year, the U.S. Federal Reserve cut interest rates. But cost-conscious homebuyers and homeowners hoping to refinance their loans shouldn’t expect that mortgage rates will similarly fall—at least not immediately.

The presidential election overshadowed the Fed’s quarter-of-a-percentage-point rate cut on Thursday, according to New American Funding Chief Investment Officer Jason Obradovich.

Mortgage rates are separate from the Fed’s short-term interest rates, but generally move in the same direction. So, when the Fed is expected to lower its rates, mortgage rates generally decline a bit. However, mortgage rates climbed on Wednesday following the results of the election.  

They reached 7.13% on Wednesday before falling to 6.98% for 30-year, fixed-rate loans on Thursday, according to Mortgage News Daily. That was still up nearly a full percentage point from mid-September in the days leading up to the Fed’s previous half a percentage point cut. 

However, homebuyers shouldn’t despair. The mortgage rate bump is expected to be temporary.

“The Fed should be driving mortgage rates, but there are just so many other factors around the election, unemployment, and inflation,” said Obradovich.

The Fed’s anticipated rate cut in December “will ultimately lower rates,” Obradovich added.

Rates rose this month because President-Elect Donald Trump is perceived by many investors as good for business—and the stock market. That makes many investors more likely to put more money in the market and less in bonds and mortgage-backed securities.

When there is less demand for bonds, mortgage rates typically go up.

While mortgage rates may be volatile over the next few weeks, the good news for homebuyers is they are expected to eventually come down. That means that those who purchase homes today at a higher rate may be able to refinance their loans when rates drop.

Additionally, buyers who enter the market in the last months of this year may have certain advantages.

“There should be more [home] listings and somewhat less competition [from other buyers] heading into the last two months of the year,” said Bright MLS Chief Economist Lisa Sturtevant in a statement. The multiple listing service represents the mid-Atlantic region.