There's so much speculation in the market with the talk of the Federal Reserve rate cut. Here’s what Mike Hendrickson, Sr. Mortgage Consultant at U.S. Bank, had to say:
Mortgage pricing is not tied to Fed action. This may come as a surprise to many who mistakenly believe that Fed rate cuts are immediately tied to mortgage rate pricing. That correlation is untrue. See, the Fed rate cut yesterday of .25% (25 Basis points) does not equal a mortgage rate cut of 25 Basis Points.
In fact, Fed Funds Rate pricing is the basis for shorter-term and/or revolving variable-rate pricing such as with Home Equity Lines of Credit, Credit Cards, and Automobile Loans rather than the typical fixed-rate long-term mortgage products.
Fixed-rate mortgage pricing is tied to Mortgage Backed Securities (MBS) and Treasury Bond Yields (see related article, “What is the Rate?”). That’s because mortgage instruments become securities that are traded in financial markets much like stocks and bonds. MBS and 10-Year treasury notes can, and often do, change every minute of every business day. That's why when you read stories about “what rates are” the information is not always an accurate indicator of real-time pricing.
Case in Point: When the Federal Reserve announced the rate cut yesterday, MBS and Treasury Yields immediately began to rise. Then, mid-day, they whipsawed back to where they started earlier in the day. If you believed that the rate cut meant lower mortgage rates and locked yesterday you would have lost money. Today, with the tariff announcements, the MBS and Ten-Year Treasuries acted very favorably. Tomorrow, rates and prices for mortgages will be better than they were yesterday --- and, in fact, better than where they've been for the past month! But, remember, this is not because of Fed action but other financial news that has the power to move rates in either direction.
Charts below indicate what happened today (8-1-2019):
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Please note this discussion in no way represents a rate quote but rather is designed to give you tools to understand what drives rates and how to spot trends. Your specific rate also depends on a number of factors like down payment, credit score, etc.
This article was prepared by Mike Hendrickson, Sr. Mortgage Consultant at U.S. Bank.