Yesterday the Fed Lowers Interest Rates, Today 30-Year Mortgages are More Expensive
Yesterday I wrote a brief piece on the .5% interest rate cut by the Federal Reserve in the hopes of explaining how this impacts us regular folks. As I was writing the piece one of my colleagues looked over my shoulder and said, “You know, it seems that every time the Fed lowers interest rates for the banks, the interest rates on mortgages bump up. Why is that?” Well, in theory, there should be, over a period of time, a lowering of interest rates on consumer loans as a result of the Fed’s actions, but today mortgage giant Freddie Mac reported that 30-year, fixed-rate mortgages averaged 6.46 percent this week, up from 6.04 percent last week. The sharp increase pushed 30-year rates to the highest level since the week of Oct. 16.
Today, the Seattle Times offers an excellent article explaining why this happened:
“Analysts attributed the increase to the impact the financial crisis is having on bond markets. The upheavals on Wall Street last month drove investors to the safety of Treasury securities. Now that the panic is easing a bit, investors are moving out of Treasury bonds into other investments. That movement means less demand for Treasury securities, pushing their yields higher. That increase drives up rates for mortgages linked to those investments.”
Even though interest rates are still under 7% (which is historically low), this increase isn’t helping sell homes. Let’s hope that things settle down after the election.
