Mortgage Rates Reach Three-Year Low Before Upcoming Federal Reserve Meeting
Mortgage rates on 30-year fixed loans experienced a notable decline Tuesday, falling to 6.13%, marking the lowest level since late 2022. This 12 basis point drop from Monday reflects investor activity in mortgage-backed securities ahead of a widely anticipated Federal Reserve interest rate cut.
Matthew Graham, chief operating officer at Mortgage News Daily, highlighted parallels with similar market behavior in September 2024. “The overall set-up is reminiscent of September 2024 when rates were doing the same thing for the same reasons ahead of Fed meeting with a virtual 100% chance of a rate cut,” Graham noted. He added that mortgage rates paradoxically rose after the Fed’s previous rate cut, suggesting a similar outcome could occur but is not guaranteed.
Historical Context and Market Expectations
Willy Walker, CEO of commercial real estate firm Walker & Dunlop, provided further insight during CNBC’s Property Play podcast, referencing historical Fed rate cut periods since 1980. Walker explained that rate cuts during recessionary periods tend to lower long-term yields, including the 5- and 10-year Treasury rates. However, in non-recessionary environments like the current one, such cuts generally do not exert significant downward pressure on long-term rates.
Walker anticipates a 25 basis point cut by the Fed, potentially followed by another 25 basis point reduction. Despite this, he does not expect these cuts to substantially influence long-term rates. “Yields are well below where they will be two or three weeks from now,” he said, adding that market participants might “buy on the rumor and sell on the news,” with a possible sell-off in the 10-year Treasury following the Fed’s announcement.
Implications for Borrowers and Investors
The decline in mortgage rates could offer some relief to homebuyers and those looking to refinance, albeit temporarily. However, the potential for rates to rise after the Fed’s decision introduces uncertainty. Market participants and borrowers alike should prepare for possible volatility in the days following the Fed meeting.
FinOracleAI — Market View
The drop in mortgage rates ahead of the Federal Reserve meeting is a positive signal for the housing market in the short term, potentially spurring increased borrowing and refinancing activity. However, the historical tendency for rates to rise post-Fed cuts introduces risk of volatility. Investors should watch Treasury yields closely following the announcement, as a sell-off could lead to higher long-term rates, impacting mortgage costs. The key risk remains whether the Fed’s actions align with market expectations and the broader economic outlook.
Impact: positive
