August 5, 2021

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Mortgage News

Rates Jump After Fed Announcement

Mortgage rates were already driving higher in the first half of the week, but that’s it Nothing compared to today. This afternoon’s Fed announcement was certainly on the radar as a potential source of volatility. Needless to say, it was delivered.

But how much delivered it exactly, and Why?

There’s a pretty common one misunderstanding that the Fed sets / changes mortgage rates directly. That really only applies when it comes to something like HELOCs (Home Equity Lines of Credit), and even then the Fed is only changing its key rate. HELOC lenders then set interest rates using the Fed’s rate as the underlying asset.

In a somewhat similar note there is another misunderstanding about changes in the Fed Funds rate that correlate with the development of mortgage rates. While that can To be true over long periods of time, we don’t have to look too long to find examples to the contrary. I’m going to submit today as a great example. The Fed left its key rate unchanged and went on to say that it will weren’t even around Consider a rate hike. That said, the average mortgage lender rose about an eighth percent over 30-year maturities (that’s a very big move for a single day).

For the mortgage market, the crux of the matter is the message from the Fed and the implications for that TIMED COORDINATION future policy changes. In today’s announcement, Fed members have significantly accelerated their prospects for future rate hikes (mostly in 2023). This implied a more active discussion about a tapering the Fed’s bond purchase programs – something that is very important to mortgage rates. In the press conference following the announcement, Fed Chairman Powell confirmed that the Fed had taken the next steps in discussing tapering. By then, however, the damage had already been done (the markets had long since assumed it was).

Overall, today’s day is just a symbolic adjustment – especially given the surprisingly strong performance of the bond market last week. It remains to be seen whether today is just the beginning of a sustained trend towards higher interest rates. While we could Certainly seeing such a trend in a few more days, sustained momentum in one direction or another is considered elusive until the Fed (and everyone else) thinks we have enough information about the economy to make bigger decisions to meet .