The Federal Open Market Committee's decision to meet broad expectations for a 25 basis point cut might not give many people in the market for a home loan the break they anticipated.
"What does that do for mortgage rates? I think we've already seen that show up. The last three, four weeks, we've seen mortgage rates come in, or come down by about 30 basis points in anticipation of this," Joel Kan, deputy chief economist at the Mortgage Bankers Association, told attendees at
So when it comes to what the Fed cut itself did for long-term mortgage rates, it wasn't much.
"We think the 10-year Treasury is not going to go that much lower. We're sitting at around 4.05%, last I checked," Kan said, noting that at the time of the conference he had a "pretty flat rate forecast."
"The short end of the curve, yes, is coming down because the Fed is expecting to lower rates over the next 12 months or so. But the long end, we think, is held up by just overall uncertainty around the U.S. deficit," he said.
Lenders generally confirmed that view Wednesday.
"The mortgage rates haven't really moved. The markets in general have been anticipating this," said Tom Hutchens, president of Angel Oak Mortgage Solutions, in an interview Wednesday afternoon.
Eventually the financing costs for the most common type of mortgage may fall, but the longer-term bond yields that are a more direct driver of interest-rate direction saw relatively minimal moves on Wednesday, Hutchens said.
"Mortgage rates may stay relatively flat in the short term since
Most home loans are 30-year fixed rate products driven more by long-term bond activity than the fed funds rate but there are some with variable financing costs more closely correlated with monetary policymakers' actions, he said in an emailed statement.
Fixed rates might not be lower, ARMs, HELOCs will
"Consumers could benefit from lower short-term rates, making
The ARM share of
ARMs represented 12.9% of total applications last week and they're currently configured a lot differently than they were back when payment shock related to them contributed to the Great Financial Crisis in 2008.
Today, most ARMs are hybrid products that start with a fixed rate period, many of which are multiple years. .
Rates for home equity lines of credit, which are normally adjustable, also will be 25 basis points lower starting on Oct. 1, noted Hutchens.
"It makes tapping into one's equity even more appealing," he said.
Rates for personal and credit card debts also will fall, which could help more borrowers qualify for mortgage financing and homeownership, Hutchens added.
Mortgage rates likely to fall further in future
The Fed's cut still bodes well for interest rates in general to eventually trend downward, Banfield said.
"For consumers, it's another signal that the cost of borrowing is gradually moving lower," he said.
Lenders also have a lot of business from the rate cuts that they made in anticipation of the Fed's action to tide them over.
"The good news is we've seen a lot of activity in the last 35-45 days so we're very optimistic as to where we're headed," Hutchens said.
Housing supply concerns Federal Reserve Chairman Powell brought up in his press conference Wednesday afternoon do exist but conditions are improving in some markets, the Angel Oak executive said.
The Fed's decision to keep the runoff in its bond portfolio as is and its economic outlook largely in line with expectations means lenders will be looking to the next round of indicators to determine whether they'll raise or lower the price of loans.
"Now we go back to data watching for the direction of mortgage rates for the rest of the month," said Melissa Cohn, regional vice president at William Raveis Mortgage, in an email.
Kan said the MBA is forecasting rates going down to the mid to low 6s in 2026.
There also could be issues with a potential government shutdown or a U.S. debt downgrade related to the deficit more near-term that could affect the rate outlook. Prepayment risk related to increased refinancing's impact on the mortgage-backed securities market also will play a role.
"Because rates can also come down, MBS investors want to be compensated for that prepayment risk, and so we think that's keeping that spread a little bit wider around 220, 230 basis points. Typically, we run at 180 or so historically," he said.
