Friday saw mortgage rates move back up near the highest levels of the week, and thus the highest levels of the past 3 months. Thus ends another week where mortgage rates end higher despite a Fed rate cut. We've beaten this horse to death, but here are the two key reasons Fed rate cuts don't necessarily result in lower mortgage rates, in as few words as possible:
Different Kinds of Rates
Fed Funds Rate = loans of 24 hours or less.
Mortgage rates = loans up to 30 years.
Rates can have vastly different behavior when they apply to loans of vastly different time frames
Vastly different levels of timeliness
Fed only meets to consider rate cuts 8 times a year whereas mortgage rates move daily.
As such, mortgage rates can get in position well in advance of the Fed actually cutting.
All told, this week's Fed announcement had only a small, temporary impact on financial markets, and it was completely reversed on Friday. In contrast, the upcoming week actually has significant new market movers. These include Retail Sales for October, CPI inflation data for November, and the much-anticipated November jobs report (as well as half of the October jobs report). Unlike the Fed rate cut, markets can't accurately predict how these reports will come out. If they're mostly stronger than expected, rates will break up and out of their recent range. If the reports are weaker, rates should retreat back down into that same range.
“What happened with the DSCR appraisal issue in Baltimore earlier this year?” Good question. Baltimore is not alone: This week we have investors either pricing themselves out of, or ceasing loans from, the Philly market for certain non-owner loans.) The whole Baltimore thing seems to have quieted down, and up until recently the last news coming in October although this week along came, “Baltimore is striking fear into private lenders across the country.” “Over the past three years, businesses connected to Benjamin Eidlisz purchased more than 700 houses in Baltimore. Through a subsidiary called Loan Funder LLC, Roc Capital financed at least $35 million of these deals, according to a Banner review of property records. That money was used to purchase and refinance at least 224 homes in Baltimore. Today, 70 percent of those homes are in foreclosure, records show.” (Today’s podcast can be found here and this week’s are sponsored by Lenders One. Lenders One is dedicated to helping independent mortgage bankers, banks and credit unions reduce costs, improve profitability, and operate competitively in the mortgage industry and within their communities. Hear an interview with iEmergent’s Bernard Nossouli on why mortgage demand is better predicted by bottom-up, borrower-level and local-market signals than by national macro assumptions, while still requiring vigilance for structural inventory gaps, demographic shifts, and policy shocks that lenders and policymakers must factor in to understand true housing opportunity.)
There's a noticeable divergence between long and short term bonds since the Fed announcement, and it's becoming more pronounced today. We can consider a few different reasons with the most basic being that the Fed rate cut outlook keeps shorter-term yields locked down at lower levels thus forcing the long end of the curve to absorb more of the selling impulse on selling days. As far as 2yr yields are concerned, it's not even really a selling day (they're currently DOWN microscopically). Meanwhile, 10yr yields are almost 4bps higher.
We can also consider an underlying concern among traders that was encapsulated in a comment this morning from Fed's Goolsbee, who said there was little to suggest the labor market was decaying fast enough to warrant this week's rate cut, especially in the absence of more timely econ data. The tacit conclusion is that if next Tuesday's jobs report is strong, markets will increasingly feel like the Fed just made a mistake. Last but not least, the least stressful thesis is that 2025 ended on Fed day and everything we see between now and the 2nd week of January is noise. Choose your own adventure.
Two-Way Trading But Not Much Day-Over-Day Movement
Bonds had a solid morning, adding moderately to yesterday's rally and taking yields well into the lowest levels since last Friday. But from just after the 9:30am NYSE open, bonds leaked slowly weaker, ultimately ending the day closer to unchanged levels. In the bigger picture, nothing interesting or significant happened, and December 16th (jobs report day) is set to be the only other obviously tradeable day of 2025.
Econ Data / Events
Jobless Claims
236k vs 220k f'cast
Continued Claims
1838k vs 1950k f'cast
Market Movement Recap
10:23 AM Stronger after claims data. MBS up 6 ticks (.19) and 10yr down 3.6bps at 4.115
12:44 PM MBS up an eighth and 10yr down 2.7bps at 4.123
02:30 PM Gains fading a bit. MBS up only 2 ticks (.06) and 10yr down 1.1bps at 4.14
03:57 PM drifting out at same levels as last update. MBS up 2 ticks (.06) and 10yr down 0.9 bps at 4.142
As is sometimes the case on the day following a Fed day, the bond market carried a bit more momentum in the same direction as yesterday afternoon. Fortunately, the momentum was toward lower rates this time around--a nice break from the past two Fed days which resulted in several days (and weeks) of higher rates. This leaves the average lender roughly in the middle of the range over the past 3 months. These are also the lowest levels seen since last Thursday for the average lender.
Watching Rates
Check our some recent articles and posts about current rates.
Friday saw mortgage rates move back up near the highest levels of the week, and thus the highest levels of the past 3 months. Thus ends another week where mortgage rates end higher despite a Fed rate cut. We've beaten this horse to death, but here are the two key reasons Fed rate cuts don't necessarily result in lower mortgage rates, in as few words as possible:
Different Kinds of Rates
Fed Funds Rate = loans of 24 hours or less.
Mortgage rates = loans up to 30 years.
Rates can have vastly different behavior when they apply to loans of vastly different time frames
Vastly different levels of timeliness
Fed only meets to consider rate cuts 8 times a year whereas mortgage rates move daily.
As such, mortgage rates can get in position well in advance of the Fed actually cutting.
All told, this week's Fed announcement had only a small, temporary impact on financial markets, and it was completely reversed on Friday. In contrast, the upcoming week actually has significant new market movers. These include Retail Sales for October, CPI inflation data for November, and the much-anticipated November jobs report (as well as half of the October jobs report). Unlike the Fed rate cut, markets can't accurately predict how these reports will come out. If they're mostly stronger than expected, rates will break up and out of their recent range. If the reports are weaker, rates should retreat back down into that same range.
As is sometimes the case on the day following a Fed day, the bond market carried a bit more momentum in the same direction as yesterday afternoon. Fortunately, the momentum was toward lower rates this time around--a nice break from the past two Fed days which resulted in several days (and weeks) of higher rates. This leaves the average lender roughly in the middle of the range over the past 3 months. These are also the lowest levels seen since last Thursday for the average lender.
The Fed cut its policy rate by 0.25% today and mortgage rates moved lower after the announcement. That said, those two developments are not related. In fact, there was no movement in the bonds that underlie mortgage rates when the rate cut was announced. Instead, the market (and rates) moved in response to Fed Chair Powell's press conference. While there is a mistaken belief that such press conferences "always" result in upward pressure on rates, today shows they can go both ways. Key comments that may have helped: Powell: Job gains could have been overstated in recent months Powell: Growing evidence that inflation is coming down Powell: Rates are now in a high range of neutral The reference to "neutral" means the Fed Funds Rate is near the levels that should neither help nor hurt the economy. Being in the higher end of that range means there could be room for another rate cut or two in 2026. This possibility was already reflected in the rate forecasts that came out with today's announcement, but the market appreciated hearing it from Powell. Up until Powell's press conference, mortgage rates had been little changed from yesterday. Afterward, most lenders made mid-day changes resulting in the lowest rates of the week.
Mortgage rates were surprisingly steady on Tuesday with most lenders roughly in line with Monday's levels. Why surprising? Because the bond market was noticeably weaker and bonds dictate day to day mortgage rate movement. In Tuesday's case, we can actually reconcile the steadiness with the timing of bond market movement. Specifically, bonds didn't lose ground until after the 10am release of the Job Openings data from the Bureau of Labor Statistics. Most mortgage lenders consider bond market levels before 10am when setting rates for the day. The implication is that if bonds are at the same levels tomorrow morning, the average lender would set rates higher. Tomorrow afternoon brings another potential source of volatility in the form of the latest Fed announcement. The most important thing to understand about tomorrow's probably Fed rate cut is that it is NOT a mortgage rate cut. In fact, mortgage rates have been more likely to move higher following recent Fed cuts. Even then, the cut itself is not the news the market is waiting for. Rather, traders are interested to see each Fed member's rate outlook via the quarterly release of the Fed's economic projections. In addition, every Fed meeting includes a press conference with the Fed Chair and bonds have often made the biggest moves in response. Bottom line: the rate cut means nothing for mortgage rates. Volatility will come from the 2pm ET dot plot (the chart that shows each Fed members' rate outlook) and the 2:30pm press conference.
