Why Mortgage Rates Are Not Falling Despite Federal Reserve Rate Cuts

The Federal Reserve today announced its second rate cut of 2024, lowering its benchmark interest rate by 0.25% just after the U.S. presidential election. This follows a 0.5% reduction in September and is in response to easing inflation and persistently low unemployment.

This move comes after a series of 11 rate increases from March 2022 to July 2023, bringing relief to consumers by reducing borrowing costs for credit cards, auto loans, and home equity lines of credit.

Impact on Mortgage Rates
While the Federal Reserve doesn’t directly set mortgage rates, it influences them through its policies. Mortgage rates generally follow the direction of shorter-term interest rates.

However, despite the 0.5% rate cut in September, mortgage rates have actually risen, with 30-year fixed-rate loans now averaging 6.79%, according to Freddie Mac.

Key Economic Factors Influencing Mortgage Rates
-Bond Market: Mortgage bonds, or mortgage-backed securities (MBS), consist of groups of mortgages bundled together and sold to investors. These investors receive interest payments from borrowers’ monthly payments. Recently, bond yields have risen due to expectations of stronger economic growth under the incoming administration, making these bonds less attractive and pushing mortgage rates higher.

-10-Year Treasury Yield: Mortgage rates often move in tandem with the 10-year Treasury yield, a crucial indicator of long-term interest rates. In early September, this yield was 3.84% but has since jumped to 4.31% as of November 7.

-Labor Market: A robust labor market has also put upward pressure on mortgage rates. The September jobs report showed payrolls increasing to 254,000, up from 159,000 in August, while the unemployment rate dipped by 0.1 percentage points to 4.1%. Strong job growth can signal increased demand for housing, which can drive rates higher.

These factors indicate that, despite the Federal Reserve's recent rate cuts, mortgage rates may stay elevated as the economy continues to show resilience. While additional rate cuts are expected at the Fed's December meeting and potentially in early 2025, their timing will depend on the strength of the economy, the labor market, and inflation trends.

Whether you're buying, refinancing, or exploring your options, we’re here to help you secure the best mortgage financing. Contact us today for expert guidance and personalized solutions tailored to your needs. Call 808-566-6611 for details.