The Anticipated First Rate Cut Since 2020!
Big news from last week—the Federal Reserve just made its first rate cut since 2020, dropping the federal funds rate by 50 basis points (bps), bringing it to a range of 4.75% - 5%. Almost all of the central bankers (11 out of 12) voted for this larger cut, kicking off what looks like a new round of rate cuts. There’s talk of two more, smaller cuts (25 bps each) by the end of the year, with possibly more going into 2025.
The stock market loved it, but since we’re all about real estate here, what does this mean for mortgage rates? You might have noticed something strange—mortgage rates were already falling before the rate cut and even ticked up a bit after!
That’s because mortgage rates usually move before a Fed cut, anticipating the change. Once the cut happens, the bond market may react differently. Maybe the bond market was hoping for a bigger cut or more aggressive Fed moves. Either way, more rate cuts mean borrowing gets cheaper!
But here’s the thing: lower rates can be a bit of a double-edged sword. Yes, it makes borrowing easier and brings more buyers into the market. But if there aren’t enough homes for sale, more buyers could mean more competition—and that could drive prices up.
Just to clear things up, the federal funds rate is the rate banks charge each other to borrow money. It doesn’t directly impact mortgage rates, but it affects the overall cost of borrowing. Mortgage rates are more closely tied to the 10-year Treasury yield. So when borrowing costs drop, mortgage rates could follow!
Hope this gives you a little more insight into the fed rate drop and if you'd like to talk about your specific home buying or selling plans, you can schedule a buyer consultation call with me here:
https://calendly.com/liz-schuyler
Thanks for Reading,
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