Fed Cuts Rate And Mortgage Interest Rates Rise

I’ve received a lot of calls asking about rates today. Everyone calls and wants to refinance since the Fed lowered the federal funds rate by 0.750%. I patiently tell everyone that the two rates (federal funds rate and mortgage rates) are not directly related. In fact the two are sooooo unrelated that they actually moved in opposite directions today.

As you know yesterday the Fed lowered the federal funds rate by 0.750%. The stock market rallied today in response to this Fed move and was up 300 points (after losing 323 in earlier trading).

Here is what the 30-year rates did today at CTX Mortgage (with 1% origination):

At 9:00 AM: Our rate sheet said 5.250% on purchases
At 1:00 PM: I received re-price notice and the rate jumped to 5.625% on purchases
At 2:47 PM: Another re-price notice and this time the rate jumped to 5.875% on purchases

Notice that as the stock market rallied in response to yesterdays rate cut, mortgage rates got worse. So, why is this? 

At the technical level, when stocks rally, money moves from bonds to stocks and this lowers bond prices and increases yield. Mortgage rates are the yeild on mortgage backed securities (mortgage bonds). At the fundamental level, the Fed move is inflationary. Inflation is the bond markets worst enemy. So, bond prices fall again and increase yield. So, today we saw a double whammy!

I will venture to say that if the Fed lowers short term rates another 0.50% next week (as some expect), 30 year fixed rates will inch higher and higher through the spring and summer of this year. Only time will tell, but if you’re on the fence, now is the time to lock in the rates and move on with your transaction.

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