You may have seen headlines suggesting Jerome Powell and the Fed’s latest rate cut could doom the housing market, but let’s clear something up right away: Fed rate cuts don’t directly impact mortgage rates. If you’ve seen my latest post on Instagram (@jessicadmackey), you’ll know that while the Fed’s actions can influence the broader economy, mortgage rates are tied more closely to long-term Treasury bond yields, not the Fed’s short-term rates.
The Real Factors to Watch:
When it comes to mortgage rates, here’s what matters more:
Bond Yields: Mortgage rates often track 10-year Treasury bond yields. If those yields fall, mortgage rates typically follow.
Inflation Trends: As inflation rises, mortgage rates tend to increase as well, to offset inflation risks for lenders.
Market Demand: The level of demand for mortgage-backed securities also influences rates.
Positives of the Fed Rate Cut for Buyers
While the Fed’s move doesn’t directly control mortgage rates, it can still have indirect benefits:
Lower Consumer Debt Rates: If you have other debts like car loans or credit cards, the Fed rate cut might lower those interest rates, improving your debt-to-income ratio and boosting your mortgage approval chances.
Economic Confidence: Lower rates might spur overall economic growth, which can increase consumer confidence and stabilize the housing market.
Potential Downsides: Supply & Demand Imbalances
While a lower rate environment can boost buyer interest, inventory is still tight in many markets, which could push prices even higher. In my Instagram post, I highlighted the risk of increased competition driving up home prices, and this is something to be mindful of if you’re looking to buy.
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