The fed just cut mortgage rates right?

[Jay Hurst]

Well, no, the fed cut the fed funds rate which is the rate that big banks lend money to each overnight. Therefore, the Fed decides what the shortest-term loan cost will be. The market decides what every other interest rate will be. Obviously, mortgages are longer than 24 hours so there is no direct correlation between fed funds and long-term mortgage rates. (The exception to this is loans based off prime which would typically be home equity lines of credit as the Fed funds rate does affect prime)

The Federal Reserve meets 8 times a year, while the bond market which actually dictates mortgage interest rates is traded every second of every day of the year. So, if you and I knew the Fed was going to start cutting the fed funds rate, the traders who do it for a living did as well. They look forward to where rates are going to be, not where they are currently. Therefore, the reason mortgage rates have gone down 1.5%~ or so over the last three months is due to the bond market pricing in this cut and future cuts. You can bet on where you think the fed funds rate will be with Fed Funds futures contracts, and right now that market has the fed funds rate all the down to 3% by June 2025. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html Of course, markets can be wrong, and data can change, but that is what is being priced in at the moment.

In fact, mortgage rates often RISE after a Fed funds rate cut. This can happen for any number of reasons but for example if Powell says something that seems contradictory to the above assumptions rates can pop quickly up.

That all being said, rates can still be had at this point in the 5’s for those with good credit and loan to value. Refi’s is certainly a possibility for those that have purchased in the last two years or so.