Housing Market Update | Week of November 3rd

Just as we expected, the Federal Reserve cut the federal funds rate by 0.25% during last week’s October Fed Meeting. Despite the hawkish tone of Fed Chair Jerome Powell’s post-meeting press conference, mortgage rates remained relatively flat. The 10-year Treasury yield rose from 3.97% before the Fed meeting to 4.08% by the end of the day on Friday. The good news is that the bond market and mortgage rates aren’t acting the same way they did after back-to-back Fed rate cuts in 2024. Several factors have contributed to this decline in rates, but none more so than the deterioration of the labor market. To see rates drop further, though, we’ll need the government shutdown to end so we can receive the Bureau of Labor Statistics’ (BLS) monthly jobs report before the next Fed Meeting on December 10th. Last Week's Mortgage Rate Recap Rates Were Flat The Federal Reserve slashed the fed funds rate by 0.25% last week, marking back-to-back rate cuts at Fed Meetings for the first time since the end of 2024. Unlike last year, though, mortgage rates haven’t risen out of control directly following the rate cut. There are a few reasons for this. A lot can be attributed to improved mortgage spreads, but the biggest reason is a different economic complexion. This year, five of our eight reports have reported more than 100k jobs created, but only one exceeded 200k; the three reports between June and August reported just 88,000 combined jobs created. Compare that to last year, where 10 months reported six-figure job growth, with eight at +200k. Without our September jobs numbers (initially scheduled for release on October 3 and delayed due to the government shutdown), the Fed is partially flying blind. Because of this, Powell was quick to push back on expectations of a third straight rate cut during the December Fed Meeting. His hawkish tone sent rates higher and confirmed what we already knew: we need to see more weak labor market data for rates to keep falling. To get those numbers, we need the government shutdown to end as soon as possible. This Week's Mortgage Rate Forecast Rates Could Move Slightly After minimal movement following last week’s Fed Meeting, it will be important to see how the market reacts early this week. We’re on day 34 of the government shutdown, and if it extends to Wednesday, it will be the longest on record. Every day this continues is another day without labor metrics crucial to the Fed’s monetary policy, and with many government workers now going through another pay period without a paycheck, the economic impact of this shutdown is becoming more widespread. We will, at the very least, see private payroll data in Wednesday’s ADP Employment Report. Although this doesn’t tell the whole story for the labor market, it’s still our de facto jobs report in the absence of BLS data. Markets are expecting a meager 24,000 jobs created in the ADP report, up from last month’s negative report, but still exceptionally low. Another wrinkle throughout the week will be speeches from various Fed members. Ten of the 12 members voted to lower the federal funds rate by 0.25%, but Powell suggested less unanimity for another cut in December. If these speeches match Powell’s hawkish tone from last Wednesday, we could see the 10-year go higher. If you have any questions or want some real-time market analysis from a mortgage expert, follow this link to connect with a UMortgage Loan Originator near you!

If you’ve been watching the news lately, you’ve probably seen a lot of headlines about the Federal Reserve and interest rates. And if you're a homebuyer or a real estate agent working with buyers, you might wonder: Does the Federal Reserve control mortgage rates? It’s a great question. And the short answer is: Not necessarily. The longer answer is a bit more nuanced because while the Fed does play an important role in the economy, it doesn't directly control mortgage rates. What Is the Federal Reserve and the Federal Funds Rate? The Federal Reserve, often referred to simply as the Fed, is the central bank of the United States. Its primary job is to keep the economy healthy by keeping inflation in check, supporting the labor economy, and promoting stable & sustainable economic growth. One of the main tools the Fed uses to manage the economy is the Federal Funds Rate. This is the interest rate banks charge one another for overnight loans. While consumers don’t pay this rate directly, it has a ripple effect across the economy, influencing rates on credit cards, auto loans, and savings accounts. How the Federal Funds Rate Influences the Economy When the Fed raises the Federal Funds Rate, it becomes more expensive for banks to borrow money. That tends to result in higher borrowing costs for consumers and businesses in an attempt to slow down inflation and prevent the economy from overheating. When the Fed lowers the rate, borrowing becomes cheaper. This encourages more spending and investment, often a strategy used during economic slowdowns or recessions. Important distinction: The Federal Funds Rate influences the economy, but it does not directly control mortgage rates. Why Mortgage Rates Don’t Always Follow the Fed Here’s where a lot of confusion begins. Many people assume that when the Fed raises interest rates, mortgage rates automatically rise too. But that’s not how it works. Mortgage rates are driven by a different set of economic factors, mainly the bond market. Specifically, rates are closely tied to the 10-year Treasury yield and the performance of mortgage-backed securities (MBS). Investors who buy these securities care most about the labor market, inflation, the long-term economic outlook, and market stability/instability If inflation is rising or expected to rise, mortgage rates tend to increase. If economic conditions appear weak or uncertain, rates can fall, even if the Fed is raising the Federal Funds Rate. In fact, mortgage rates often move in anticipation of what the Fed might do, not just in response to what it has done. The markets are always looking ahead. What Really Drives Mortgage Rates? Here’s a quick snapshot of the major factors that impact mortgage rates: Inflation: Higher inflation usually = higher mortgage rates. Economic Growth: A strong economy can lead to higher rates. Global Events: Uncertainty (like geopolitical conflict or pandemics) can drive rates lower. Bond Market Demand: More demand for mortgage bonds often = lower mortgage rates. In other words, mortgage rates are influenced by a wide range of factors and are always forward-looking. Want more in-depth analysis of the housing market? Check out our weekly Housing Market Update blog. How Homebuyers and Real Estate Can Navigate the Market For homebuyers and the real estate agents supporting them, the key takeaway is this: Don’t assume that a Fed rate cut means mortgage rates are going down. In some cases, mortgage rates don’t move much on the day that the Fed cuts rates. Most of the time, they will drop in the lead-up to a Fed Meeting if a rate cut is expected. Other times, they might drop after a Fed announcement, depending on how markets interpret the economic outlook. If you’re considering buying a home or are an agent for a hesitant buyer, here’s how you should navigate periods of market instability: Focus on personal goals and timing, rather than trying to time the market. Work with a knowledgeable mortgage professional who can explain how market shifts impact your unique situation. Make informed decisions based on the bigger picture, not just headlines. Whether you're buying, selling, or considering a refinance, UMortgage Loan Originators are here to help you navigate the market with confidence and leverage homeownership to build wealth. If you’re curious about your homebuying or refinance options and want expert guidance, fill out this form to get connected with a UMortgage Loan Originator in your area!

Last week was a wild one for mortgage rates. Although the Federal Reserve announced that they would not be cutting the Federal Funds rate in their May meeting, they did announce that they are tapering their balance sheet reduction. This, combined with weak labor data sprinkled at the end of the week, saw mortgage rates drop at the end of the week. Last Week's Rate Recap: Rates Dropped Slightly Last week, the Federal Reserve held its May meeting. While they decided against cutting rates, Jerome Powell, Fed Chairman, held a dovish stance on the possibility of rate cuts in the future. Last week’s labor reports also showed a softening in the jobs market which caused rates to drop quickly at the end of the week. While it’s still unlikely that we see a rate cut in the Fed’s next meeting, a weakened labor market will be the key to seeing rates drop as the year goes on. This Week's Rate Forecast: Rates Should Stay Steady After the flurry of data and insight from last week’s jobs reports and the Federal Reserve meeting, we have a quieter week ahead without much data for the market to digest. Following a steep drop to the 10-year yield at the end of the week, market analysts will have a careful approach to instill some stability throughout the week. Overall, we should expect to see some steadiness throughout the week. If you want a more comprehensive overview of the market’s reaction to the Federal Reserve meeting and labor data last week, check out a replay of today’s Special-Edition Monday Market Update. Our two hosts offered plenty of insight behind these rate movements and some tactical advice to help you use these pieces of market data to better serve our homebuyers.