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Aug, 19

Fed Lowered Rate. Does That Mean Lower Mortgage Rates?
By www-dogoodre-com August 08, 2019

Short Answer: Not necessarily, but in this case, yes.

Last week the Federal Reserve cut their overnight rate to banks for the 1st time since 2008. That’s eleven years ago.  That is significant for a lot of reasons, but the Fed doesn’t determine mortgage interest rates.  Rather, mortgage interest rates are set by lenders, and they most closely correlate to the yields on the 10 year Treasury Bond.  When the yields go up, then mortgage interest rates will most likely go up as well. Likewise when the yields go down, that usually corresponds with lower mortgage rates. Yields are very fluid changing each day and throughout the day, while bond markets are open.

As I write this, the Treasury bonds have declined very significantly since last week following the Feds rate adjustment.  And while the Fed adjustment certainly played a role, there are other factors that determine where Treasury yields move.  As Treasury bonds are considered very low risk, they are a flight to safety for investors.  And when things like the stock markets are showing weakness, these bonds are considered a safe place to move money to.  And the stock markets have been very volatile this week, with steep declines.  Yields on bonds move inversely to price, and thus when there are a lot of buyers, yields go down.

The average 30 year fixed mortgage over the last week is right about at 3.6%.  That is the lowest since November of 2016.  15 fixed year mortgages are at 3.05% average, also the lowest since that time.  For buyers, this means increased affordability, even as home prices have gone up.  If you are in the market to buy, you might want to check with your lender to see if you can get pre-approved for a larger loan then you thought.  If you are someone who has been thinking about buying a home, but have been waiting for greater affordability, well that time may have come.

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