How Will the Fed Cut Affect Mortgage Rates?
So, the Fed cut their Overnight Rate by 0.25 today. So far, mortgage bonds are reacting poorly to the news, putting upward pressure on mortgage rates.
What caught my immediated attention when I read their policy statement was the new language of "the pace of economic expansion will likely slow in the near-term, partly reflecting the intensification of the housing correction." It seems the Feds are finally catching up with what we've known for many months; that we are much closer to the beginning of this "housing correction" than its end.
Hey, wait a minute you are saying, I thought the Fed cut rates so why are mortgage rates rising? The Fed cut THEIR Overnight Rate. Mortgage rates are strictly determined by how mortgage bonds trade, not what the Fed does with their Overnight Rate. The value of mortgage bonds, and their prices on the open market, are dictated by many more factors than just the Fed Overnight Rate, primarily inflationary influences in the economy.
As mortgage bonds weaken on today's news, and throwing in the volatile monthly Jobs Report on Friday, I advise anyone closing on new mortgage financing in the next 30 days to lock your rate now.
P.S. Exciting news! My blog was picked up by www.blogburst.com this past week.
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