September 27, 2024
Fed’s Rate Cut: What’s Next for the Mortgage Market?
By Brian Devlin, CEO, Arc Home
In September 2024, the Federal Reserve slashed interest rates by 50 basis points. Historically, such a move would lead to an immediate decline in mortgage rates. However, mortgage rates did not follow the expected pattern this time. Instead, rates ticked up due to market anticipation, and other factors like bond yields that had already baked in the rate cut before it was officially announced.
Why Rates Rose Despite the Cut
Although the Fed cut short-term rates, mortgage rates are largely influenced by long-term bond yields, particularly the 10-year Treasury note. The bond market often moves faster than the Fed, reacting to economic data before rate changes are implemented. In this case, stronger-than-expected economic reports, including new home construction and jobless claims, pushed bond yields higher, sending mortgage rates up as well. The market had already accounted for the rate cut weeks prior, limiting its impact on mortgage pricing.
What This Means for Mortgage Professionals
For brokers and correspondents, this signals the need to stay flexible in a rapidly changing rate environment. While the Fed’s cut may not result in immediate mortgage relief, it opens opportunities to emphasize alternative lending products.
HELOCs (Home Equity Lines of Credit) become particularly attractive during these times. As traditional mortgage rates remain unpredictable, tapping into home equity with products like a HELOC can offer clients a more stable solution for debt consolidation, home improvement, or other financial needs. This is especially relevant as home equity remains near peak levels, though high interest rates have made some homeowners hesitant to tap into that wealth.
Looking Forward
While this cut alone may not dramatically lower mortgage rates, a trend of rate reductions could emerge if the economy shows signs of weakening. Brokers and correspondents should prepare for continued fluctuations but also take advantage of the current market by offering a diverse range of products, from Non-QM loans to HELOCs, to meet the evolving needs of their clients.
Understanding these shifts and maintaining a flexible, well-rounded portfolio of loan offerings will be key to success in navigating this complex landscape. As always, staying ahead of the curve means staying informed and adaptable.