It has been slightly over a week since the Federal Reserve reduced its key interest rate for the first time in two years. However, mortgage rates have shown little change and instead have experienced a slight increase.
When the Federal Reserve lowered its key federal funds rate from the range of 5.25%-5.5% to 4.75%-5% on September 18, the housing industry experienced a wave of optimism. Prior to this, the national 30-year mortgage rate had declined below 7% after peaking at 7.5% in April.
As of Thursday, September 26, the national average rates on 30-year fixed-rate loans fluctuated between 6% and 6.2%, showing a minor rise from the previous week. Several online platforms have even posted offers occasionally showing rates as low as 5.7% or below.
Due to mortgage rates remaining mostly at 6% or higher, the housing market has seen a slowdown in home sales. Nonetheless, data from the Mortgage Bankers Association indicates a slight increase in activity. For the week ending September 20, mortgage applications surged by 10% compared to the previous week. Applications to refinance existing homes rose by 20% from the preceding week and surged 150% year-over-year.
Mortgage applications to purchase homes are a key indicator of buyer interest and confidence in both personal financial situations and the broader economy.
At a rate of 6.2%, the monthly principal and interest payment on a $250,000 loan would be approximately $1,531. In April, with rates at 7.5%, the same payment would have been $1,748. These figures exclude property taxes, insurance, or homeowners association fees.
The recent interest rate cut by the Federal Reserve could lead to further rate reductions if additional cuts are made in the upcoming meetings on November 6-7 and December 17-18. The primary driver of lower mortgage rates is not the Federal Reserve’s direct influence on mortgage lenders but the response from bond traders to the Fed’s signals, leading to lower bond yields and subsequently lower mortgage rates.
The bond market plays a crucial role in determining mortgage rates, and it is essential to monitor its movements closely.
As for the slow movement in mortgage rates, several factors contribute to this scenario:
1. The effects of the Federal Reserve’s decisions take time to permeate through the economy.
2. Concerns about commodity prices, particularly oil, which are highly sensitive to geopolitical tensions, especially in the Middle East. Recently, fears of an Israeli invasion of Lebanon caused a spike in crude prices.
3. The proximity of the November 5 elections has made traders cautious, delaying significant market moves until post-election stability.
Once the elections conclude and assuming a definitive outcome, it is anticipated that interest rates will begin to decline regardless of the winning party.
In related developments within the retail sector, Target has clarified its return policy amid emerging trends, an analyst has reassessed Costco’s stock pricing ahead of its earnings report, and Nike’s shares have risen following the announcement of a new CEO.