The Fed controls the Fed Funds Rate. They DO NOT control the mortgage rate. Although what the Fed does can affect what happens to mortgage rates. Now what I just wrote may sound like a foreign language or even worse, a hard Algebra word problem, but try to stay with me as we delve into this a little further.
Mortgage rates are tied to mortgage bonds. As the price of mortgage bonds go up, rates in turn get lower. When the price goes down, rates go higher.
People basically have two options when investing their money. They can either put it in stocks or bonds. Stocks are risky than bonds and thus reward their investors with a higher yield. Bonds on the other hand are a safer investment and yield is lower.
When there is positive news about the economy such as low unemployment and high capital goods orders, people will pull their money out of bonds and put it into stocks on the hopes of it earning more money. On the other hand, if there is negative news people will pull their money out of stocks and put it into the safer investment of bonds.
By now you are probably asking how does the Fed rate cut affect mortgage rates? The majority of the time, you will actually see mortgage rate increases after the Fed has a rate cut. Why you ask, because this does not seem to make logical sense? Because when the Fed cuts the rate, they are doing so to jump-start the economy and to hopefully avoid the R word. In this case Recession.
A Fed rate cut does mean happy days for the stock market. Because people are pulling their money out of bonds and into stocks. A Fed rate cut does not automatically mean that the mortgage interest rates will be lower. In fact, in most cases you will see the rates drift upwards after a Fed rate cut.
One of the Very Best in the Business.My wife and I met Jill as we prepared to place our first... read moreOne of the Very Best in the Business.My wife and I met Jill as we prepared to place our first house on the market and began to look for a new home in the Spring area. I've worked with agents in the past with whom I've been less than impressed, but Jill is top-notch. She is punctual, thorough, and patient. She has an almost encyclopedic knowledge of the market, the builders, the school districts, the MUDs, and the neighborhoods. For the sale of our home, Jill took us step by step through the preparations necessary to get our house ready to show: everything from rearrangement of furnishings to referrals for handymen. When we started viewing potential houses to buy, I was amazed that Jill not only knew everything about the house she was showing me, but seemed to know details regarding all the neighboring houses as well. For the closings, Jill was an extra set of eyes, ensuring that the paperwork was in order. She also made sure that the the closing was at a convenient location and took as little time as possible (less than an hour in both instances). All throughout the process, Jill remained a driving force, constantly ensuring that inspection reports were being rendered promptly or that the mortgage provider was keenly aware of the closing date; and I received a steady stream of email updates from her. I couldn't be more pleased with her, and in the event we're once again in the market for another home, she would be my first call. read less