Daniel Burke
Jerome Powell, Chairman of the Federal Reserve, announced a cut in interest rates of 50 basis points on September 18, 2024. Social media and news networks worked overtime to share hot takes in the race to be first, and a lot of predictions were made about the real estate industry.
I’m here to tell you that most of those predictions are complete fantasy. Here’s why:
What is The Difference Between The Federal Fund Rate And Mortgage Rates?
There is a difference between the Federal funds rate and mortgage rates.
- The federal funds rate has to do with what banks lend each other. This rate is set by the federal reserve to keep the economy moving and manage the supply of money. There’s a lot more to it but that isn’t important for this conversation.
- Mortgage rates are what a consumer pays to borrow money for a home. It is a consumer facing product sold to homebuyers.
So one of these rates affects fund moving from bank to bank, and the other is for home buyers. Mortgage rates are not set by the fed, but are affected indirectly by what the fed does because of the overall impact of the rate cuts on the economy.
What do these rate cuts do?
- At today’s opening, the Dow Jones, Nasdaq, and S&P 500 were all up; the DOW and S&P were reporting some all time highs.
- Much of the market went up, because money just got cheaper to obtain.
- Lennar and NVR, two large publicly traded home builders, saw their stock values go up.
Affect On Mortgage Rates
Mortgage rates actually went up, just a little, since the announcement. One source had rates jump from 6.11% – 6.15% yesterday, and today I’m seeing mortgage rates of 6.17% as I post this.
You might say “Wait WHY?? Why did rates not go down?” Well, they did already. The mortgage industry has been reacting to many factors, including the federal reserve, all summer. The mortgage industry was not surprised by the fed announcement. So while the Fed’s actions do have an impact, that impact was already forecasted and factored in on mortgage rates. Make sense?
Outlook:
- Fannie Mae predicts lower rates but very gradual and just into the upper 5’s by end of 2025. Wells Fargo has rates moving slowly down into the mid to upper 5’s as well.
- These predictions are less than .5% from where rates are today.
- There is no reason based on this available data to believe rates are coming down quickly or significantly.
Conclusion:
The Federal Reserve does not control mortgage rates. When the Fed makes a cut or a hike to the Federal Funds rate, it affects a completely different system of lending and borrowing. Mortgage rates have been coming down, but there are many factors involved.
If you’re interested in buying a home, contact The Burke Team today. If you intend to finance the purchase using a mortgage, they can recommend locally based reputable lenders if you don’t have one already. If you’re outside their area and they’re unable to help, they can refer you to someone who can!
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