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Mortgages and the Fed Rate Change

Mortgages and the Fed Rate Change Well, what gives? Why would the Federal Reserve lower interest rates, but mortgage rates rise? You must remember that mortgage interest rates are forward-looking. It is a competitive market with a great many banks and lenders all trying to compete for your business. The average escrow is 30 days, meaning I can make a deal with somebody several weeks before I must commit my money. If good news is on the horizon, you will see lenders begin to price increasingly competitively knowing that they are not taking a risk. It will only be 30 days later that they must put their money where their mouth is. At the beginning of August, it was all but certain that the Federal Reserve was going to make a 25-point basis cut. In anticipation, we have seen interest rates come down significantly. In fact, they came down too significantly. The competition was fierce, overhedging was plentiful, and just like the last four rate cuts the exact same pattern occurred. 1. Good future news for interest rates 2. Lenders cut rates weeks in advance 3. Federal Reserve cuts rates, mortgage rates go up Federal Reserve interest rate cuts are much like red herrings in the mortgage world. By the time they happen, the best period to actually shop has already passed. So, what's next? About one week ago, a new prediction was thrown out and reaffirmed by the Federal Reserve. We would see two additional rate cuts occur in 2025. So here is your top tip! Lenders have already priced in a good portion of these interest rate cuts to get an edge on each other! We have seen interest rates come down a little over half a percent in five weeks. If you have any buyers waiting, the time to shop is now, before it turns into a sellers’ market! Mortgage rates are likely to stay put for the rest of 2025 since lenders already have priced in the future rate cuts! Let’s hope we are wrong in a good way.