Expectations are that mortgage rates will stay relatively stable around their current levels and are unlikely to see a significant drop in the near future.
Prior to the Federal Reserve’s interest rate cut, mortgage rates had been approaching the “magic number” of 6%, which was seen as crucial for stimulating a sluggish housing market characterized by low inventory and locking in of rates.
However, since the Fed announced the rate cut, mortgage rates have actually increased in line with long-term Treasury yields.
It is important to note that Fed rate cuts do not always result in an immediate drop in mortgage rates, as the latter tends to follow the expected trajectory of policymakers rather than their actual decisions.
In recent weeks, statements from Fed officials and economic data have indicated a less aggressive approach to monetary easing.
Following the rate cut, the Fed released economic projections showing a less significant reduction in rates than what the market had anticipated.
Fed Chairman Jerome Powell also emphasized that the half-point cut was not necessarily indicative of the pace of future cuts, and that policy decisions would depend on economic data.
Furthermore, Powell later stated that there was no rush to further cut rates, and a strong jobs report suggested a robust economy with increasing demands for higher wages.
Wall Street analysts revised their predictions for Fed rate cuts downwards, leading to a surge in the 10-year yield. This unexpected data suggested that the Fed may need to pause on rate cuts to prevent inflation from accelerating.
Mortgage rates have followed the increase in Treasury yields. According to Mortgage News Daily, the average 30-year fixed rate spiked to 6.53% on Friday, which is 42 basis points higher than before the Fed cut rates.
In a statement following the jobs report, Mortgage Bankers Association’s chief economist, Michael Fratantoni, warned that inflation may not continue cooling in a linear fashion, which could slow the pace of Fed rate cuts.
Looking forward, Fratantoni forecasted that mortgage rates will likely remain within a narrow range over the next year, hovering close to 6%.
Prior to the jobs report, housing market forecasts were already cautious about activity levels and mortgage rates.
Freddie Mac, a major mortgage company, predicted that mortgage rates would further decline but remain above 6% by the end of the year in their monthly outlook.
While demand is expected to increase, sales may not see a significant boost due to modest improvements in affordability and the lingering impact of lock-in rates on inventory.
“Unless rates see a substantial decrease—potentially by a full percentage point or more—we do not expect a significant increase in the inventory of existing homes hitting the market, which will continue to limit supply,” Freddie Mac stated. “Overall, we anticipate muted home sales in the coming years.”
