If you’re in the market to buy or refinance a home, you might’ve celebrated when you heard about the Federal Reserve’s recent rate cut. Many people assume that when the Fed lowers rates, mortgage interest rates will follow. But if you’ve been watching the market, you might have noticed that mortgage rates didn’t budge—or even went higher. What’s going on?
Here’s the inside scoop on why the Fed’s actions don’t always have the direct impact on mortgage rates that people expect.
The Fed Doesn’t Set Mortgage Rates
First, let’s clear up a common misconception. The Federal Reserve controls the federal funds rate, which is the interest rate banks charge each other for overnight loans. It’s a short-term rate, primarily influencing things like credit card rates, auto loans, and home equity lines of credit (HELOCs).
Mortgage rates, however, are tied to the bond market, specifically the yield on 10-year Treasury notes. When the Fed acts, it sends signals to the broader economy, but it doesn’t directly dictate mortgage rates.
Why Didn’t Mortgage Rates Drop?
Several factors are at play here:
- Inflation Is Still a Concern
The Fed’s primary goal is to control inflation. Even with rate cuts, if inflation remains stubbornly high or the market believes inflation will rise, mortgage rates are unlikely to fall. Mortgage investors demand higher returns to protect their investments from losing value in an inflationary environment. - Market Sentiment
Mortgage rates are heavily influenced by investor expectations. If the market believes the Fed’s rate cuts signal economic uncertainty or that inflation will remain high, investors may pull money out of bonds, driving yields (and mortgage rates) higher. - Timing Mismatches
Sometimes, markets “price in” Fed actions before they’re officially announced. This means mortgage rates may have already adjusted before the Fed made its move. By the time the announcement comes, the bond market has moved on to the next concern. - Risk and Volatility
Economic uncertainty—whether from global conflicts, a shaky stock market, or banking instability—can make investors cautious. Higher perceived risk often translates to higher mortgage rates as lenders try to safeguard against future losses.
What This Means for Homebuyers
If you’ve been waiting for a Fed rate cut to lower mortgage rates, you’re not alone. However, the reality is that today’s rates reflect a complex mix of factors, not just Fed policy. Here’s my advice:
- Focus on Your Budget, Not Just Rates: A slight difference in interest rates might not impact your monthly payment as much as you think.
- Lock Your Rate Wisely: Work with your trusted realtor and lender to decide when to lock your rate. Timing the market perfectly is nearly impossible, but an experienced professional can guide you based on trends.
- Explore All Options: Adjustable-rate mortgages (ARMs), rate buy-downs, or seller concessions might be worth considering in today’s market.
Stay Informed, Stay Prepared
The mortgage market is complex but understanding what drives rates can help you make smarter decisions. Whether you’re buying your first home, upsizing, or investing, having the right information and guidance is crucial.
For information on maintaining your credit score to get the best rate, go here.
For information on mortgage options, go here.
At The Alfriend Group, we’ve navigated every kind of market for over three decades. If you’re thinking about buying or selling in Central Ohio, let’s connect. Together, we’ll craft a strategy that works for your goals—no matter what’s happening with the Fed.
Your partner in real estate success,
Kyle Alfriend
Alfriend Group / ReMax
Kyle Alfriend has been investing in real estate for over 35 years, assisting over 3,000 clients in buying, selling, or investing in real estate.
For more tips on buying, selling, or investing, or for a personal consultation, contact Kyle Alfriend, (614) 395-1776, or info@AlfriendGroup.com. Or go to our website, AlfriendGroup.com