The Federal Reserve lowered its interest rate target three times in 2024.
That leaves many Americans waiting for mortgage rates to drop. But that may not happen for some time.
“I think the best-case scenario is that we’re going to continue to see mortgage rates hovering around 6 and a half to 7 percent,” said Jordan Jackson, global market strategist at J.P. Morgan Asset Management. “Unfortunately,” Jordan told CNBC “What’s wrong is that for homeowners looking for some relief on their mortgage rates, that may not be available.”
Mortgage rates may be affected by Federal Reserve policy. But interest rates are more closely tied to long-term borrowing rates on government debt. this 10-Year Treasury Bond Yield Interest rates have been increasing in recent months as investors consider the possibility of more expansionary fiscal policy from Washington in 2025.
Fannie Mae Economist said the Fed’s management of its mortgage-backed securities portfolio could affect today’s mortgage rates.
During the pandemic, the Fed purchased large amounts of assets, including mortgage-backed securities, to adjust supply and demand dynamics in the bond market. Economists also call this technique “quantitative easing.”
Quantitative easing can narrow the spread between mortgage interest rates and Treasury bond yields, bringing cheaper loan terms to home buyers. It could also provide opportunities for homeowners looking to refinance their mortgages. Fed’s use of this technology amid pandemic brings Mortgage rates set to hit record lows in 2021.
“They are buying mortgage-backed securities more aggressively in 2021. So (quantitative easing) may not be wise at that time.” Matthew Graham, chief operating officer of Daily Mortgage News, said.
In 2022, the Federal Reserve launched a plan to reduce the balance of assets held, mainly by allowing these assets to mature and “roll over” from the balance sheet. This process, known as “quantitative tightening,” could add upward pressure on the spread between mortgage rates and Treasury yields.
“I think that’s one of the reasons why, from the Fed’s perspective, mortgage rates are still moving in the wrong direction,” said George Calhoun, director of the Hanlon Center for Financial Systems at Stevens Institute of Technology.
Watch the video above to see how the Fed’s decision affects mortgage rates.
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