Why Mortgage Rates Haven't Fallen

NEW YORK – With the Federal Reserve reducing benchmark interest rates by 50 basis points, the expectation was that mortgage rates would fall as well, but they went up instead.

One measure of mortgage rates did decline briefly, but pricing mortgages is complex and includes more than just Fed cuts. Some analysts have said that the decline in mortgage rates at the time of the Fed's move may have just been a market change that started a week earlier and not the beginning of a new change.

Often long-term mortgages are packaged into bonds that are closely aligned with longer-term benchmarks, not short-term rates set by the Fed. Mortgage bond and Treasury trading are often a reflection of what investors believe the Fed will do over several months and years, which usually is tied to how well the U.S. economy is performing.

The rise in 10-year Treasury yields after the Fed's rate cut signaled what the near-term path for mortgage rates would be. The national average for 30-year fixed rate mortgages is 6.12% through Oct. 2, according to Freddie Mac, which was up from 6.09% as of Sept. 18.

Mark Palim, chief economist at Fannie Mae, said, "The key is not necessarily whether the Fed cuts short-term rates by 25 or 50 [basis points] but how that reduction is interpreted further out on the yield curve by bond market participants." Market volatility is expected to push mortgage rates higher, as yields on 10-year Treasurys rose higher after a stronger-than-expected jobs report.

Mixed economic data also may not lower mortgage rates if large market swings result because demand for mortgage bonds could be lower and widen their spread to benchmark Treasurys, which ultimately pressures rates offered by lenders to borrowers.

Federal Reserve data also show that the average weekly Freddie Mac measure of 30-year fixed rates has been over 5% this century.

Source: Wall Street Journal (10/04/24) Demos, Telis

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