Why Did Mortgage Rates Rise After the Fed’s Rate Cut?
- Barry B
- Sep 20, 2024
- 2 min read
If you’ve been watching mortgage rates closely, you might be puzzled: right after the Federal Reserve cut interest rates, mortgage rates actually went up. Here’s why.
When the Fed cut its benchmark rate by 50 basis points, many expected mortgage rates to follow suit. But markets are reacting not just to the current cut but also to signals about future Fed actions. Investors were hoping for more aggressive cuts, but with the Fed indicating a slower pace - 25 basis points per meeting - mortgage rates saw a slight increase.
This small rise is temporary, according to experts. Robert Frick, an economist at Navy Federal Credit Union, believes that mortgage rates will settle below 6% in the next couple of months as the market adjusts to incoming economic data. Positive reports like stronger jobless claims and a stock market surge have pushed bond yields up, which in turn, raised mortgage rates for now. However, as inflation continues to decline and the economy stabilizes, mortgage rates are expected to drop further.
What Should You Do?
For buyers, don’t let small rate changes be the deciding factor. The key question is whether you can find a home you love at a price you can afford. A minor dip in rates won’t outweigh finding the right home.
For homeowners thinking about refinancing, a 2-point difference in your current rate makes refinancing worthwhile. If you locked in at 7.7% and now see rates near 5.7%, it’s a no-brainer to refi - just factor in closing costs, which typically range between 2-6% of the loan amount.
Future Outlook for Mortgage Rates
Looking ahead, Fannie Mae forecasts that mortgage rates will settle around 6% by early 2025 and could dip further into the 5% range. While we’ll likely never see the pandemic-era 3% rates again, the trend is looking favorable for those hoping for slightly lower rates.
Fun Fact: Did you know that mortgage rates are often higher in the afternoon than in the morning? This is because lenders typically adjust their rates throughout the day based on how bond markets perform. If the bond market shifts during the day, mortgage rates could be updated multiple times, meaning timing your rate lock earlier in the day could potentially save you some money!