Housing Market Update | Week of May 6th

If you’ve been watching the news lately, you’ve probably seen a lot of headlines about the Federal Reserve and interest rates. And if you're a homebuyer or a real estate agent working with buyers, you might wonder: Does the Federal Reserve control mortgage rates? It’s a great question. And the short answer is: Not necessarily. The longer answer is a bit more nuanced because while the Fed does play an important role in the economy, it doesn't directly control mortgage rates. What Is the Federal Reserve and the Federal Funds Rate? The Federal Reserve—often referred to simply as the Fed—is the central bank of the United States. Its primary job is to keep the economy healthy by keeping inflation in check, supporting the labor economy, and promoting stable & sustainable economic growth. One of the main tools the Fed uses to manage the economy is the Federal Funds Rate. This is the interest rate banks charge one another for overnight loans. While consumers don’t pay this rate directly, it has a ripple effect across the economy, influencing rates on credit cards, auto loans, and savings accounts. How the Federal Funds Rate Influences the Economy When the Fed raises the Federal Funds Rate, it becomes more expensive for banks to borrow money. That tends to result in higher borrowing costs for consumers and businesses in an attempt to slow down inflation and prevent the economy from overheating. When the Fed lowers the rate, borrowing becomes cheaper. This encourages more spending and investment, often a strategy used during economic slowdowns or recessions. Important distinction: The Federal Funds Rate influences the economy, but it does not directly control mortgage rates. Why Mortgage Rates Don’t Always Follow the Fed Here’s where a lot of confusion begins. Many people assume that when the Fed raises interest rates, mortgage rates automatically rise too. But that’s not how it works. Mortgage rates are driven by a different set of economic factors, mainly the bond market. Specifically, rates are closely tied to the 10-year Treasury yield and the performance of mortgage-backed securities (MBS). Investors who buy these securities care most about the labor market, inflation, the long-term economic outlook, and market stability/instability If inflation is rising or expected to rise, mortgage rates tend to increase. If economic conditions appear weak or uncertain, rates can fall, even if the Fed is raising the Federal Funds Rate. In fact, mortgage rates often move in anticipation of what the Fed might do, not just in response to what it has done. The markets are always looking ahead. What Really Drives Mortgage Rates? Here’s a quick snapshot of the major factors that impact mortgage rates: Inflation: Higher inflation usually = higher mortgage rates. Economic Growth: A strong economy can lead to higher rates. Global Events: Uncertainty (like geopolitical conflict or pandemics) can drive rates lower. Bond Market Demand: More demand for mortgage bonds often = lower mortgage rates. In other words, mortgage rates are influenced by a wide range of factors and are always forward-looking. Want more in-depth analysis of the housing market? Check out our weekly Housing Market Update blog. How Homebuyers and Real Estate Can Navigate the Market For homebuyers and the real estate agents supporting them, the key takeaway is this: Don’t assume that a Fed rate cut means mortgage rates are going down. In some cases, mortgage rates don’t move much on the day that the Fed cuts rates. Most of the time, they will drop in the lead-up to a Fed Meeting if a rate cut is expected. Other times, they might drop after a Fed announcement, depending on how markets interpret the economic outlook. If you’re considering buying a home or are an agent for a hesitant buyer, here’s how you should navigate periods of market instability: Focus on personal goals and timing, rather than trying to time the market. Work with a knowledgeable mortgage professional who can explain how market shifts impact your unique situation. Make informed decisions based on the bigger picture, not just headlines. Whether you're buying, selling, or considering a refinance, UMortgage Loan Originators are here to help you navigate the market with confidence and leverage homeownership to build wealth. If you’re curious about your homebuying or refinance options and want expert guidance, fill out this form to get connected with a UMortgage Loan Originator in your area!

Mortgage rates are slightly higher to start the week as the markets digest the news that the U.S. and China agreed to temporarily lower tariffs for 90 days. This news saw 10-year treasury yields and the stock market spike at the opening bell. This week ahead has a ton of new economic data that will show how inflation has responded to the early days of the Trump administration’s sweeping tariffs. The two biggest reports are Tuesday’s CPI inflation report and Thursday’s PPI inflation report. We’ll also hear from a handful of Fed members, including a speech from Chairman Jerome Powell on Thursday. Last Week's Mortgage Rate Recap Rates Were Steady Last week’s Fed Meeting went just as expected as the Fed opted to keep the Federal Funds Rate unchanged for the 3rd consecutive meeting this year. What the markets were really watching last week was less of the Fed’s rate decision and more Powell’s post-meeting press conference, where economists hoped to get insight into the Fed’s approach to what appears to be a weakening economy. When pressed about the lack of Fed action despite data showing signs of economic slowdown, Powell said, “It's an economy that's been resilient and is in good shape… We're going to be watching the data. The data may move quickly or slowly, but we do think we're in a good position where we are to let things evolve and become clearer in terms of what should be the monetary policy response.” This Week's Mortgage Rate Forecast Rates Could Move A busy week for market-moving data started in the early hours this morning as the U.S. and China announced a temporary cut to tariffs for 90 days, with U.S. imports to China reduced to 10% and Chinese imports to the U.S. reduced to 30%. Markets will fluctuate as more details emerge and other reports are released. Here are the major reports we’re keeping an eye on: Tuesday: Consumer Price Index (CPI) inflation report; NFIB Small Business Optimism Index Wednesday: Fed Speeches – Fed Governor Christopher Waller, Fed Vice Chair Phillip Jefferson, San Francisco Fed President Mary Daly Thursday: Producer Price Index (PPI) inflation report; weekly initial jobless claims; U.S. retail sales; Fed Chairman Jerome Powell speech As rates fluctuate and our clients become wary, it’s important to remember that our job isn’t to convince people to buy or sell if they’re not ready. It’s to educate them so they feel confident when the time is right. My strategy has been to cut through the noise by breaking down the simple finances of this market. When rates are relatively elevated, like they are now, you typically see sellers list homes for less or reduce the asking price the longer a home sits on the market. As rates drop and more buyers flock to the market, home prices increase due to a higher volume of offers and lower inventory. So, while lower rates could help drop their monthly payment, home prices keep going up. When buyers see this, they can decide if now or later makes more sense for their situation. As the week progresses, make sure to stay in touch with your UMortgage Loan Originator for updates after certain reports are released or headlines are published.

Last week was a wild one for mortgage rates. Although the Federal Reserve announced that they would not be cutting the Federal Funds rate in their May meeting, they did announce that they are tapering their balance sheet reduction. This, combined with weak labor data sprinkled at the end of the week, saw mortgage rates drop at the end of the week. Last Week's Rate Recap: Rates Dropped Slightly Last week, the Federal Reserve held its May meeting. While they decided against cutting rates, Jerome Powell, Fed Chairman, held a dovish stance on the possibility of rate cuts in the future. Last week’s labor reports also showed a softening in the jobs market which caused rates to drop quickly at the end of the week. While it’s still unlikely that we see a rate cut in the Fed’s next meeting, a weakened labor market will be the key to seeing rates drop as the year goes on. This Week's Rate Forecast: Rates Should Stay Steady After the flurry of data and insight from last week’s jobs reports and the Federal Reserve meeting, we have a quieter week ahead without much data for the market to digest. Following a steep drop to the 10-year yield at the end of the week, market analysts will have a careful approach to instill some stability throughout the week. Overall, we should expect to see some steadiness throughout the week. If you want a more comprehensive overview of the market’s reaction to the Federal Reserve meeting and labor data last week, check out a replay of today’s Special-Edition Monday Market Update. Our two hosts offered plenty of insight behind these rate movements and some tactical advice to help you use these pieces of market data to better serve our homebuyers.