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federal Reserve It was announced today Reduction in interest rates by 0.25 percentage pointsa move that was expected and third issue by economic experts Rate Cut this year.
At a practical level, fed Decision indirectly affects mortgageBut the impact isn’t as much as you might think, said Kevin Watson, branch manager at Churchill Mortgage,
It’s more about how the anticipation of today’s decision affected rates – not how today’s decision will affect rates in the coming weeks.
“The Fed’s cuts don’t take effect the day they cut rates,” Watson said. Independent by email. “Whatsoever way mortgage rates The work is in anticipation of what they think the Fed will do the next time they meet. I like to think of it this way: The Fed is looking in the rearview mirror, and we’re looking out the front windshield.
How, take a look at this mortgage rates Provides insight into what changes have occurred this year relationship Also helps maintain rates set by the Federal Reserve inflation And the job market is in equilibrium.
a rocky relationship
Generally, the general rule is that mortgage rates follow the Fed rate. If the Fed rates go down, mortgage rates go down, and vice versa.
However, this is not always the case. For example, according to Freddie Mac, mortgage rates rose after several cuts at the end of this year, 2024 Primary Mortgage Market SurveyWhich tracks average mortgage rates over time.
This is because mortgages are not directly tied to the Fed rate – many factors influence this, including treasure bondAccording to the lender, if the price of those bonds increases, mortgage rates increase (but not always), and vice versa, rocket hostage,
ahead of the curve
The Federal Open Market Committee, the Federal Reserve’s policymaking group, meets several times throughout the year to discuss the state of the economy and decide whether rates need to be raised or lowered to keep inflation under control and employment healthy.
The committee decided to cut the Fed rate at its meetings on September 16-17 and October 28-29. But a few months before that, rates on 30-year fixed mortgages (the most popular type) began to fall.
According to the Primary Mortgage Market Survey, from May 29 to September 11, 30-year fixed-rate mortgage rates fell from 6.89 percent to 6.35 percent, and continued their decline (with temporary rate spikes) to 6.19 percent on December 4.
“It’s important for people to realize that by the time the Fed actually announces its [a] The rate cut, it’s already factored into bond pricing,” said Samuel Shayovitz, mortgage banker and president of direct lender Approved Funding.
What’s going to happen next?
Shayovitz believes that, as we end the year, mortgage rates will continue to decline as December is typically kind to mortgage rates.
“However, I am confident that rates will improve in the new year as December is historically a favorable month for rates [tend] As for the low trend Traders Close out your position for the year,” he told Independent by email. “In addition, I see continued weakness in the job market, which will force the Fed to take action despite their dovish stance.”
That said, Watson also believes rates will fall, but only if inflation and the job market move in certain directions.
“Although they are not directly tied to each other, if we see inflation coming down and jobs being weak, we are likely to see lower mortgage rates in anticipation of the next Fed rate cut,” he said.
If home loan rates continue to fall, Watson predicted that home values would likely rise as mortgage demand would increase.
“More demand on housing will drive prices up because we still have less inventory of available homes,” he said.