Now that the Fed has cut rates, what’s next for mortgage rates?

August 2, 2019

Are your buyers aware of the opportunity offered by today’s market?

After the Fed’s rate cut, there’s lots of talk about lower rates. Whether mortgage rates rise or fall from here, it’s still a great time to be a homebuyer

Many homebuyers may be expecting lower mortgage rates in the wake of the Federal Reserve’s decision* on Wednesday, July 31, to reduce their benchmark federal-funds rate, the first easing of monetary policy in over ten years. Because it was so widely expected, the Fed’s move was already reflected in mortgage rates. That is, the cut in the short-term rate was already “priced into” mortgage yields by the time it came. The only question ahead of the rate cut was how aggressive it might be – a half-point cut or, as it turned out to be, a quarter-point cut?

The key point to remember: Although mortgage rate changes can be volatile, they move in response to shifting market conditions and in anticipation of Fed policy. They do not change in reaction to a Fed policy change that was widely anticipated.

Additionally, mortgage rates and other long-term rates are influenced by many other factors than just the Fed, which operates on securities with very short maturities. As recently as last December, when the Fed raised the target on its benchmark rate by 0.25%, mortgage rates were falling and were almost a quarter-point lower than November’s average rate of 4.87%.

And that decline in December was just the beginning of a continuing drop in mortgage rates through the first seven months of 2019. The 30-year fixed-rate mortgage averaged 3.77% in July.

The great news is that we are enjoying the lowest mortgage rates we’ve had in a couple of years. Consider the impact from the decline in rates since November. For the 30-year fixed-rate mortgage, the decline from November’s 4.87% to July’s 3.77% reduces the monthly principal and interest payment by $65 for every $100,000 borrowed, a savings of over $23,000 over the term of the loan.

While mortgage rates have been falling, home price increases have been decelerating. The most recent reading of a popular home price gauge shows a 5.1% increase over the past twelve months. A year ago, home prices were rising at a 7.4% rate.

Meanwhile, home sales have been cooling off, with existing home sales 4.2% lower through the first half of 2019 than the same period last year. But applications for home loan purchases are up 6% over last year, reflecting an increase in first-time homebuyers.

The combination of low mortgage rates, a more balanced housing market, and slower home price growth may give your customers additional motivation to act now to purchase a new home.

And, as the recent Wells Fargo Homeownership Study shows, Americans continue to highly value homeownership – and it remains a top priority for them in achieving financial security.

*The Fed’s action
The Fed lowered its target range for the federal-funds rate by a quarter-point, to 2.00% to 2.25%. Previously, the target range, the Fed’s primary policy lever for rates on short-term securities, was 2.25% to 2.50%.

It’s the first rate cut in over ten years and ends a series of nine consecutive quarter-point increases that began in December 2015.1

Belana ChechelnitskyHome Mortgage Consultant
NMLSR ID 357881

Wells Fargo Home Mortgage | 1995 EL CAMINO REAL SUITE 200 | SANTA CLARA, CA 95050
MAC A0580-024
Cell 408-219-9141

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