Can someone enlighten me as to what will most likely happen to home mortgage rates assuming the Fed cuts rates in a couple weeks. Mortgage rates are tied to the 10 year note and I am aware that it is only the short-term Fed funds rate that is controlled by the Federal reserve. However, I'm specifically interested in what effect this will have, if any, on the 10-year note and in turn the average mortgage rate as a result. Is all of this already baked into the cake, so that it would NOT have any effect unless something unexpected happens (ie no cut or .50 cut) I'm looking to buy a house and I'm wondering when I should lock-in the rate. Does any of this even really matter? Thanks. jbob
Housing mortgage rates are not really tied to the 10 year treasury note. They would be more closely tied to libor or the london eurobank internight rate, which hit a 6 year high today, so (correct me if I'm wrong) the mortgage rate would be more tied to the high grade commercial credit paper market than the fed funds rate, but if the fed cuts rates two or three times and credit loosens your mortgage would likely get quite a bit cheaper, I don't know precisely how much, maybe someone else has a formula they use?
If things really get bad, mortgage rates will rise relative to treasury rates. Bankers will be less confident in granting mortgages and feel more confident about holding treasuries.
the 30 year fixed mortgage correlates closely to the 30 year T-bond, 7 year ARM with the 10 year T-bill, and the 5 year ARM with with the 5 year T-bill. a reduction in the FF rate may not cause mortgage rates to immediately drop. sometimes it can take months, but eventually they will drop.