Why the Upcoming Fed Meeting Doesn't Matter for Mortgage Interest Rates
A Perspective from Logan Mohtashami, Lead Analyst at HousingWire Daily
For months the industry has been saying that the September 12th meeting will be the meeting where the Fed is going to cut rates. The amount of the cut varies, but the general consensus has been that September is when it will start and then we may have one or 2 more before the end of the year.
Many buyers and sellers have been counting on this date to take the plunge. Buyers are assuming that that is when mortgage interest rates will go down, making purchasing more affordable, and sellers are hoping the drop will increase demand. I’ll admit that I was also convinced that if the Fed just cut the rates that the housing market would be better. However, after doing a bit of research, I don’t think that the magical date of September 12th will have that profound of an effect on the consumer.
Why not? According to Logan Mohtashami, the lead analyst at HousingWire, mortgage interest rates are affected by a combination of infaltion, the 10 year yeild in the bond markets, and unemployment. Inflation, while still high, has been slowing. The 10 year yeild has been all over the place, but to give you a bit of background, when it increases, it indicates higher returns on government debt, allowing for higher mortgage rates. As it decreases, mortgage rates decrease. As you can see in the graph below, it has been generally decreasing since May 2024.
And finally, mortgage rates are affected by jobless claims. The jobs reports have been adjusted down every month for about the last 3-4 years, but the market wasn’t reacting to it because inflation was still so high. However, it was recently acknowledged that the jobs report cited over 800,000 more jobs created than what actually happened, so I think it’s safe to say that the job market is deteriorating… You can also see this in the graph below which shows unemployment increasing since March 2024.
So how are the mortgage rates affected by the Fed’s possible rate cut? According to Logan, they’re not. “The mortgage rates do not wait for the Fed,” he says. A rate cut only affects the spread, or how much money is made between what the Fed rate is and what the mortgage rate is. This is evident recently because even though the Fed has not done a rate cut since 2020, interest rates have still decreased about 2% from one of their peaks since May 2024. This is just now starting to happen because we are seeing inflation slow and jobless claims grow.
So, according to Logan, and the above graph, mortgage interest rates have already adapted to the jobless claims and are ahead of the Fed meeting (as they should be). When you compare all of these images from May 2024 on, you can see how unemployment has been increasing, while the 10 year yeild and mortgage rates have been decreaing.
That doesn’t mean that a rate cut this month won’t be beneficial for the lending industry, it just means that interest rates may not jump down at the exact ratio of the cut.
I think it is safe to say that I am not a financial advisor, nor am I a mortgage loan officer. I don’t understand all of the ins and outs of how the bond market and jobs reports directly affect everything, but I do know real estate and I see the trends that are happening in our local market. With all of that being said, I truly believe that if you want or need to buy or sell real estate, and you can comfortably afford the payment, then don’t try to time the market! No one has a crystal ball to time buying or selling perfectly, but if you have the ability, and it fits in to your real estate goals, then it is always a good time!
If you would like to listen to the HousingWire’s podcast with Logan Mohtashami talking about the Fed rate cuts, click here.
And, if you would like to discuss if now may be a good time for you to buy or sell, please contact me. I would love to help you reach your real estate goals!
Jennifer Wilson | Realtor | 850.865.2788 | jenwilson2@outlook.com