Why Fed Rate Cuts May Not Mean Lower Mortgage Rates

Dreaming of drastically lower mortgage rates? Hold on! While many are hoping Federal Reserve rate cuts will unlock the housing market, this video, featuring WSJ's Veronica Dagher, throws a bucket of cold water on those expectations, explaining why mortgage rates likely won't plummet below 6% anytime soon.

Here's the lowdown:

It's Not Just the Fed! Many assume Fed cuts directly translate to lower mortgage rates, but that's often not the case. Mortgage rates tend to track the 10-year Treasury yield, which is a better proxy as most homeowners stay put for about a decade. Short-term and long-term rates don't always move in lockstep; for example, when the Fed cut short-term rates last fall, long-term rates (and mortgages) actually rose due to investor worries about deficits and inflation.
The Risk Premium: Investors demand a 'premium' to compensate for the risk of owning mortgages, especially with rate uncertainty. This spread has been elevated but recently fell, making its future direction crucial for mortgage rates.
Housing Market Stalemate: The market is stuck! There's a severe lack of homes for sale because current homeowners, snagging ultra-low rates years ago, are understandably reluctant to sell and take on a much higher new mortgage.
A Glimmer, Not a Guarantee: We've seen mortgage rates hit an 11-month low in anticipation of Fed cuts, offering a sliver of hope. However, it would take a much more significant drop to truly motivate sellers and free up inventory.

What This Means for You:

Don't rely on refinancing later! The golden rule is to only commit to buying a home if you can comfortably afford the current mortgage rate on your current income. Many economists predict mortgage rates will gradually drop through the year and into next, but generally stay above 6%. While a few optimists hint at high-fives by late 2026, those predicting big drops have been consistently wrong over the past few years. So, be savvy and plan for today's reality!