Mortgage Rates Continue Climb Despite Fed Rate Cuts

Even as the Federal Reserve announced a rate cut last months, mortgage rates appear to continue climbing. For the second straight week, mortgage rated continued increasing, but .04 percent from last week. Compared to a year ago, mortgage rates have ballooned from 6.12 percent up to 6.34 percent. But if the Fed is cutting rates, why are mortgage rates continuing to climb?

Well, mostly because the two are not as correlated as you might think. Mortgage rates tend to be a broader economic vision, rather than a short-term look. Fed rate cuts impact things like credit cards, home equity lines of credit, and other forms of debt instruments. Mortgages though tend to be 30-year fixed rates, with lenders collecting more over a longer period.

Most of those mortgages are paid off within seven to ten years, on average. Texas real estate expert Cliff Freeman says mortgage rates are more akin to long-term optimism.

"When Wall Street and the bond market look at mortgages, it compares it more closely and tracks the 10-year treasury," he says.

Mortgage rates did dip briefly before the rate cut, as markets had already factored it in, dropping the treasury yields. But that has since reverted, and we are back to some unaffordable rates.

The problem though is that we are not sure when the mortgage rates will actually drop. The Fed did not give clear indication of how it felt in its last meeting, regardless of the rate cut.

"The Fed was really not clear on whether this was a permanent step toward lowering rates, or this was a temporary cut to accommodate the economy," says Freeman. "That is the difference and the reason why mortgage rates do not track with short-term rates."

If you bought a house in the pandemic stricken 2020 market, you did things right. Rates then were rocking near historic lows, with many still locked into three percent rates and refusing to sell. For which you cannot blame them, especially in the current landscape.

The odds we see rates that low again are borderline impossible, but we might still get back somewhere into the low fives. Do not expect that to happen anytime soon, though. There is still a lot of work to be done.

"I think we have to remain open-minded and optimistic...keep an eye on the economy and jobs," Freeman says. "There are so many things that will impact the direction of rates in the future."

Freeman adds though we need this to bring back down the affordability of housing, which is in crisis mode.

Whether we see any true improvement soon is in the air. But thanks to the Fed's vagueness, it is a waiting game.