Mortgage rates rose today by about as much as the Fed lowered – just like last time!
If anyone needed any further convincing that a Fed rate cut is no guarantee of lower mortgage rates, today is a great piece of evidence. Perhaps “great” is the wrong word. There was nothing great about the mortgage rate movement following today’s Fed rate cut.
The average lender is at least 0.20% higher than earlier this morning. Lenders are still in the process of adjusting their rate sheets, so the total damage could vary slightly by the time we’re able to run the full numbers.
Either way, the top tier conventional 30yr fixed rate will easily be back over 7% for the average lender.
Nice improvement in mortgage rates recently. You can get into the low-6s again by paying a point or two!
In the last 90 days, there have been 433 sales between La Jolla and Carlsbad, and the median days-on-market was 26 days. More than half sold in less than a month, and it has been sneaky hot since election day!
With rates trending lower over the brief holiday season, buyers should be engaging right away in 2025.
Mortgage rates are going to be sticky. A good solution for buyers is to do a 2/1 buydown on their rate today. They get the benefit of lower-than-market rates for the next year or two while waiting to refinance once rates drop – and if they don’t drop, at least you get the 5.99% in this example:
A recent example: the buyer negotiated a $100,000 discount on a house priced in the $2 millions. Then he took a $60,000 discount on the price, and had the seller apply $40,000 towards a rate buydown to get a program similar to the one above!
By the smallest of margins, mortgage rates are back up to levels last seen in July. That means we’ve gone from being fairly close to 6% in mid-September to being nearly as close to 7% today when it comes to top tier 30yr fixed scenarios for the average lender.
Today’s jump was particularly quick and frustratingly lacking in satisfying explanations. It’s not the explanations make bad news any more palatable, but it’s always more frustrating to be confronted with unpleasantness that seems to be happening for no good reason.
There are several theories, but nothing as obvious or demonstrable as a surprise result in a key piece of economic data. These include things like shifting election odds coupled with assumptions about policy impacts, arcane calendar issues surrounding the options market, and one of several research notes regarding U.S. deficits that have been making the rounds.
It’s unlikely that any of these factors could exclusively drive the pace of weakness seen in rates today. There are limited examples of several such factors teaming up to cause days like today, but just as often, something else comes to light in the following days that helps flesh out the explanation.
Explanations aside, it was one of the bigger jumps seen in the past few months, and by far and away the biggest jump seen on a day without a big economic report or other scheduled event.
The Fed did their half-point drop on September 18th, and since then the 10-year yield been rising.
Mortgage rates may or may not come down – in spite of what the Fed does.
Buyers who are waiting until next year because they think rates will be lower could be disappointed.
Don’t listen to the prognosticators – stay in the hunt for the right house at the right price!
This rate was 6.15% on September 18th.
Today’s much-anticipated jobs report ended up coming out much stronger than expected. A stronger result was all but guaranteed to cause carnage (relative) in the mortgage market and that’s definitely what we’re seeing. A caveat is that rates are still much lower than they were several months ago, but the average lender is now back in line with mid August levels. Additionally, this is one of the largest single day jumps we’ve seen with the average 30yr fixed rate moving from 6.26% to 6.53%.
A move of more than 0.25% in a single day is tremendously uncommon, but it can happen due to the underlying structure of the mortgage bond market.
We are trying to reach audiences in different places – this will end up on Instagram – but I like playing them here too for those who prefer videos even though we acknowledged last week that the Fed cut is a nothing-burger for now. Every message has it’s own personality though.
Hat tip to Jorge who sent in this interview with Jeffrey Gundlach, the prominent bond trader who speculates with confidence on the Fed’s half-point cut and what it means for the markets. He speaks quite knowledgeably about everything except the future of the housing market, which he called the ‘wild card’ for the economy.
This video starts where he says that he expects another 3/4% Fed cut this year, and then housing:
He said that none of us really know what’s going to happen……but let’s use math to predict the future.
My Theory:
It’s the HIGHER HOME PRICES that are locking in the current homeowners, not mortgage rates.
Everyone who bought a home before 2022 is enjoying a bonanza of new-found equity. Let’s use the 2019 buyer for an example. They hit the jackpot to buy a regular home for $1,300,000 back then, and now it’s worth around $2,385,000 – wow, an extra million dollars of equity, just like that!
Some may have a good reason to move, and they are DREAMING about using their same equity, and same mortgage amount to buy up and live with a slightly-higher rate.
But they can’t buy a much-better house for $2,385,000 – they already own a similar-sized house! The old house that was worth $1,300,000 is now $2,385,000. So they have to spend more to make it worth moving.
My rule-of-thumb is 50% more, or $3,577,500.
But let’s say that they work with a really sharp, experienced realtor and find a home that makes it worth moving for $3,200,000 and use ALL of their equity from the old house after closing costs:
Let’s also point out that in California the property taxes would go up an additional $1,742 per month, so the $11,345 + $1,741 = $13,086 MORE PER MONTH to move to a better home in the same area. Even if rates were to drop to 3.5%, the combined P&I+T = $10,713 per month.
“You’re killing me, Jim – aren’t there any other alternatives?” Yes, there are two:
Buy a smaller, crappier house in the same area.
Move out of town.
That’s it, or throw down another $1,000,000 in cash to keep the loan amount down where it was.
What does it mean for the 2025 market?
Mortgage rates should be lower than they are today, and probably in the mid-5%s. There will be a new president, and all the wait-and-see buyers who were determined to see the Fed cut rates before venturing out again will be storming the streets en masse. Those first-time buyers and out-of-towners are used to these prices now and will succumb.
What about the supply? We will have a similar number of deaths, divorces, and job-transfers (The Big Three) who always sell every year. Will those who bought a home since 2022 who made a mistake and bought the wrong house be motivated to sell? Not unless they can buy something at least equal or better – the ego can’t take a step down, so they may just refi to a lower rate instead.
But those who already own a house here will appreciate it even more, because once they look around, they will realize that their existing home will have to last them forever – they’re not moving!
We publish daily coverage of mortgage rate movement and have done so for nearly 20 years now. It’s a great place to quickly check in on rate trends and to get a sense of what’s true and what matters.
If you’d been checking in at any point in the past few days/weeks, you likely saw one of several attempts to remind readers that today’s Fed rate cut not only had absolutely no implication for lower mortgage rates, but indeed that mortgage rates have often moved higher on the same day that the Fed cuts.
That’s what happened today.
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.
It is smart for realtors to tell their buyers that lower rates in the future are unpredictable, and buying the right house at the right price is much more important. Also, any future rate improvement will be noticed by home sellers too, and they will want to push pricing – offsetting any benefit to buyers.
So the realtor industry should unite in our message to buyers about not waiting for…………..oh crap, here’s our head cheerleader telling buyers there will be six to eight rounds of further rate cuts!
Larry, Larry, Larry you’re supposed to be on our side!
Fed Chair Powell finally indicated today that it is time for rates to be lowered…..and the 10-year bond yield barely budged. The next Fed move is already priced into mortgage rates.
Don’t wait to buy just because you think rates might get better. Buy when you find the right house!
From realtor.com:
In the coming months, we’ll provide regular updates on these homebuyers so you can see how their various strategies pay off, and learn more about how to time your own home search just right.
‘I’ll buy a home once rates fall below 6%’
Homebuyer: Kathi Kendall Where she’s buying: Scottsdale, AZ, or Gilbert, AZ Price range: $500,000 to $1 million How low rates need to go: Below 6%
Her waiting game: Kathi Kendall, 62, who works at a university, wants to sell her current home and buy into a 55-plus community with a golf course and mountain views.
“I am looking for a lifestyle change now that I’m going into retirement and my kids are out of the house,” she says.
Her current home is paid off, with no outstanding mortgage balance. Even so, she explains, “I’m waiting for rates to go down to sell, because lower rates tend to mean higher home prices.”
Once she lists her house, she plans to start looking for a new property immediately, but since she plans to finance her next home purchase, interest rates will continue to affect her choices.
“If the interest rate drops half a point next month, I am going to buy a more modest place,” she says. “If rates drop a full point, I am getting something nicer with a lot of potential to build on its value.”
If Kendall doesn’t find something she loves, however, she plans to wait out the market, put her stuff in storage, and rent a furnished apartment until the time is right.
