Mortgage-backed bond investors appeared to have bought ahead of the widely anticipated rate cuts by the Federal Reserve, causing mortgage rates to drop sharply.
According to Mortgage News Daily, the average 30-year fixed mortgage rate fell 12 basis points to 6.13% from Monday. This is the lowest level since the second half of 2022.
“The overall setup is reminiscent of September 2024 when the rates were doing the same thing for the same reasons before the Fed met with a virtual 100% chance of interest rate reduction,” said Matthew Graham, chief operating officer of Mortgage News. “At the time, mortgage rates rose paradoxically after the Fed cut. The same could happen this time, but it’s never guaranteed.”
It also follows historical trends. Willie Walker, CEO of commercial real estate company in CNBC’s video podcast for property play Walker & Dunlop He said there has been a similar trend in the past.
“If we go back to 1980 and cut the nine Fed rate cut periods over those 45 years, what the Fed cuts down on the recession environment would cut down the long edge of the curve, down 10 years, down 5 years,” Walker said. “For people who aren’t in a recession like the ones they are now, they won’t affect the long-term rates, and as long as they expect to see at least a 25 basis points cut, there will probably be another 25 basis points cuts.
He added that he expects yields to be two to three weeks from now.
“I’m not trying to predict where the rates are heading, but I think people might… buy it on rumors and sell it on the news. I think we’ll probably see a bit of a decade of selling after the Fed actually announced a 25 basis point cut,” Walker said.
