As of Tuesday, mortgage rates fell dramatically to some of the lowest levels seen since late 2022. The national average rate for a 30-year fixed mortgage decreased by 12 basis points since Monday, landing at 6.13%. The news is sending investors in mortgage-backed bonds reeling. They look like they’re getting themselves in shape for what everyone’s expecting will be a quarter-point rate cut from the Federal Reserve.
Unless something changes soon, this will force the Federal Reserve to announce a 25 basis point cut in its next meeting. Other analysts expect another cut of equal size to follow soon after. Today’s market sentiment is reflecting that investors are getting ready for when they expect monetary policy to shift, deposits and other mortgage-related rates to follow.
“That’s a great opportunity right now,” said Matthew Graham, chief operating officer of Mortgage News Daily, who shared his expertise on the current landscape. He noted the parallels to previous old market trends seen in September 2024. Comparatively, expectations for a Federal Reserve meeting had the same effect on rates back during that time.
“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.” – Matthew Graham
In fact, historically all of these federal rate cuts do not necessarily guarantee lower mortgage rates. What Graham noted was that in the wake of the last rate cut cycle, mortgage rates actually – and quite counterintuitively – increased. At that time, mortgage rates actually reacted counterintuitively to the Fed’s short-term easing by rising significantly after the Fed cut. That’s repeatable and the same thing could happen this time, really, but it’s not by any means a guarantee,” he said.
Willy Walker, a prominent finance and real estate analyst, shared his thoughts about what could happen in the market after this expected decision by the Fed. He indicated that a sell-off in the 10-year bond would be appropriate following the announcement. He does not expect that these cuts will have a significant impact on the longer end of the yield curve.
“If you go back to 1980 and the nine Fed rate cut periods over that 45-year period, the ones where the Fed cuts in a recessionary environment end up pulling down the long end of the curve, pull down the 10-year, pull down the 5-year.” – Willy Walker
Walker commented that current yields are even much lower than where they’ll be in two or three weeks. This change will be largely driven by market response to the Federal Reserve’s anticipated decision.