Mortgage rates Plunge to Lowest Level since Late 2022 Amid Anticipation of Federal Reserve Rate cut
Mortgage rates experienced a important decline Tuesday, driven by investor activity in teh mortgage-backed bond market as a Federal Reserve rate cut looms. The average rate for a 30-year fixed mortgage fell 12 basis points to 6.13%, reaching its lowest point since late 2022, according to Mortgage News Daily.
Matthew Graham, chief operating officer of Mortgage News Daily, noted the current market setup mirrors conditions seen in September 2024, when rates similarly decreased ahead of a Fed meeting widely expected to result in a rate cut. Though, he cautioned that rates paradoxically increased following the Fed’s rate cut last September, a scenario that could repeat itself, though it is indeed not guaranteed.
The drop aligns with historical patterns, as explained by willy Walker, CEO of Walker & Dunlop, in a recent CNBC Property Play podcast. Analyzing Fed rate cut periods since 1980, Walker observed that cuts during recessionary environments typically lower long-term rates, including the 10-year and 5-year Treasury yields. Though, cuts outside of recessionary periods have less impact on long-term rates.
“If you go back to 1980 and the nine Fed rate cut periods over that 45-year period, the ones were the Fed cuts in a recessionary surroundings end up pulling down the long end of the curve, pull down the 10-year, pull down the 5-year,” Walker said. “In those where it’s not a recession, which is like right now, it does not impact long-term rates.”
Walker anticipates at least a 25 basis point cut,potentially followed by another,but believes the impact on long-term rates will be limited. He suggests a “buy on the rumor, sell on the news” dynamic, predicting a potential sell-off in the 10-year Treasury yield after the Fed’s announcement. “I think you probably see the 10-year sell off a little bit after the Fed actually announces their 25 basis point cut,” Walker stated, adding that current yields might potentially be lower than where thay will be in two to three weeks.
