Can someone explain what .5% rate cut means to the mortgage rates to first time homebuyers?
In: Economics
Almost nothing right now.
Fed rates control/directly influence the shortest-term interest rates (credit card debt, revolving loan, and other debts that fluctuate month-to-month in interest).
Market expectations/demand influence longer-term rates (10-year treasury yield).
Your typical 30-year mortgage is almost exclusively tied to the longer term rates, which have come down substantially in the last year because they expected the Fed to start cutting. So, directly, nothing is going to happen to mortgage rates.
The other piece where MAYBE there is some more benefit is that mortgages are priced with a “spread” to the reference rate. For example say reference rate (10-yr treasury) is 4% and mortgage people apply a spread of 2.5%, your rate is 6.5%. This is much more of a “good feeling/bad feeling” thing that banks use. If the Fed cuts make them feel a little better, they may reduce the spread by 0.25% and now your rate is 6.25% without anything changing to the reference rate.
TL;DR: this cut has been expected for a LONG time now and mortgages are not likely to move in any meaningful sense in the near term
If you want to keep an eye on news that will help lower interest rates meaningfully from where they are today, you are looking for: inflation to get lower than 2% (lower rates help boost inflation) or unemployment to rise sharply (lower rates help spending and supports employment)
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