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Yesterday, ahead of the Fed’s rate cut, I emailed friends that I thought that yields on the long end of the yield curve would rise if the Fed cut by 50 basis points.That is what happened. And yields at the long end of the curve are up again today so I expect mortgage rates will rise again tomorrow.10-Year Note and 30-Year bond Yields
Yield on the 10-year note is up 14 basis points from September 17. Yield on the 30-year long bond is up 17 basis points from September 17.Mortgage rates generally move in sync with the 10-year note not the Fed Funds Rate.Yes! Mortgage Rates RoseMatthew Graham at Mortgage News Daily wrote yesterday:
Interestingly enough, mortgage rates were already slightly higher than yesterday BEFORE the Fed announcement came out. The bonds that dictate mortgage rates are actually pointing to even higher rates tomorrow unless there’s a decent improvement overnight.
Here’s the kicker: nothing about today means much of anything for the trajectory for rates from here on out. There’s probably a slightly bigger risk that recent rate lows represent something of a floor until economic data makes a case that rates should go lower.
Two Things Happened
Should You Refinance Your Mortgage?The Wall Street Journal reports The headline is wrong. The Fed’s big cut did not change the math. Anticipation of a slowing economy and expected rate cuts are what changed the math.If the Fed only cut 25 basis points it’s more likely mortgage rates would have dropped.Headline errors aside, let’s look at the key question.
The 30-year fixed-rate mortgage averaged 6.09% this week, down from almost 8% in the fall of 2023, Freddie Mac said Thursday.
The decline in rates is offering many homeowners a chance to swap their current mortgage for one with a lower rate. Refi applications have more than doubled over the last seven weeks as mortgage rates fell, according to Fannie Mae.
With rates just above 6%, some 4.2 million borrowers could lower their rates by at least 0.75 percentage point in a refinancing, the most since early 2022, according to Intercontinental Exchange. The average refi candidate with a high credit score and significant equity in their home would save $299 a month by refinancing, ICE said.
Whether refinancing makes sense for you depends on how long it will take to recoup the upfront costs and start saving money.
If you can cut your mortgage rate by one-half percentage point or more, refinancing typically makes sense, said Jacob Channel, senior economist at LendingTree. But it is largely a timing question given rates are likely to keep falling and you may be able to cut your rate further if you wait.
Others may disagree, but I don’t recommend paying points to lower a mortgage rate ever. The reason is you have to make up those points when you refinance.Why pay points over a long term, especially if you think you can refinance lower in short term. Also, I like to include all of the fees into the rate.In retrospect, it was likely best to refinance a few days ago. But that is what I thought heading into the meeting.If you can lower your payment and not have to pay any up front costs (or minimal costs) to do so, then go for it.“The average refi candidate with a high credit score and significant equity in their home would save $299 a month by refinancing, ICE said.”If so, they may have waited too long.
Dot Plot of Fed Projections Suggests 1-2 More Quarter-Point Cuts This YearYesterday, I commented
Two Fed members project no more cuts this year. The median projection is a Fed Funds Rate of 4.4. percent at the end of the year.
As discussed above, further rate cuts may or may not mean anything to mortgage rates.Fed Chair Jerome Powell said yesterday that rates are not going back to zero.The secular low in bond yields and mortgage rates is now in the past. Factor in the fact that deficit spending is going to soar no matter who wins the election.My conclusion is this slowdown in the rate of inflation is transitory.But short term, a recession favors further declining yields at the short and long end of the curve, and that includes mortgage rates.More By This Author:
