To be sure, Fed cuts don’t mean mortgage rates suddenly drop, as the latter follows the expected path of policymakers rather than their actual moves.
First, when the Fed cut rates, it also released officials’ economic projections that included the so-called dot plot of where they see rates heading.
Mortgage rates have followed Treasury yields higher.
“MBA’s forecast is for longer-term rates, including mortgage rates, to remain within a relatively narrow range over the next year,” he added.
“This news will push mortgage rates to the top of that range, but we do expect that mortgage rates will stay close to 6% over the next 12 months.” Even before the jobs report, other housing market forecasts already weren’t very sanguine on activity and mortgage rates.
Ahead of the Federal Reserve’s rate cut, mortgage rates had fallen tantalizingly close to what some considered the “magic number” of 6 percent that would revive a stagnant housing market marked by low inventory and the lock-in effect.
However, mortgage rates have actually increased along with long-term Treasury yields since the central bank announced that much-anticipated cut last month.
For the record, mortgage rates do not fall immediately in response to Fed rate cuts; rather, they do so in line with expectations rather than actual policymaker actions.
However, expectations for an aggressive monetary easing cycle have been dashed in recent weeks by Fed officials and economic data.
Initially, the Fed published its economic forecasts, which included the so-called . plot showing the direction of interest rates, at the same time that it lowered rates. That pointed to a little less easing than what the market had assumed.
Later, Fed Chairman Jerome Powell stated that policy would continue to be dependent on data during his news conference, adding that the massive half-point cut wasn’t necessarily a sign of the speed of future cuts.
And one week later Powell issued a warning, saying that Fed members are not in a rush to lower interest rates any further. And lastly, Friday’s historic jobs report indicated that the economy is still strong and in need of many workers who are asking for higher pay.
The 10-year yield shot up 12 basis points to 3 point971 percent as Wall Street analysts slashed their predictions on Fed rate cuts. The shocking data even caused some forecasters to say that the Fed would need to hold off on rate cuts in order to prevent inflation from picking back up.
Mortgage rates have increased in tandem with Treasury yields. The average 30-year fixed rate increased by 27 basis points on Friday alone to 6.53 percent, which is 42 basis points higher than September, according to Mortgage News Daily. 17 —just prior to the Federal Reserve’s rate reduction.
The chief economist for the Mortgage Bankers Association, Michael Fratantoni, issued a warning in a statement following the jobs report that the data might decelerate the anticipated rate of Fed rate cuts because inflation might not continue to decline linearly.
“Over the course of the next year, longer-term rates, including mortgage rates, are expected by MBA to stay within a relatively narrow range,” he continued. “According to our expectations, mortgage rates will remain near 6 percent for the upcoming year, but this news will drive them to the upper end of that range.”. “.
Prior to the employment report, other predictions regarding the housing market’s activity and mortgage rates were already a little pessimistic.
The monthly outlook from mortgage giant Freddie Mac, which was released a few days after the Fed meeting, indicated that mortgage rates would continue to drop but would still be higher than 6% by year’s end.
Sales won’t increase much even though demand should increase because affordability will only slightly improve and inventory will continue to be burdened by the lock-in effect.
