Mortgage rates had a bad month. Or let’s say three bad years. It’s no surprise that potential homebuyers are looking to get a silver lining in the housing market.
With the results of today’s presidential elections unclear, easing mortgage rates will not come soon. Economic and political uncertainty is unlikely to ease much before the Federal Reserve’s monetary policy meeting tomorrow in November.
Since early 2022, the Fed has raised interest rates 11 times to tame inflation, sending mortgage rates higher. All bets are on the Fed going ahead with a cut in the federal funds rate on Thursday, its second cut in more than four years.
The expected 0.25% interest rate cut this week will not suddenly cause mortgage rates to fall by the same amount. Following the Fed’s 0.5% rate cut in September, mortgage interest rates rose, not lower.
Although central bank policy decisions and economic expectations affect credit markets, the Federal Reserve does not set mortgage interest rates directly. Mortgage rates are highly volatile and respond to multiple factors, such as investor expectations, inflation, and business data. For example, after interest rates hit a two-year low in early September, a surprisingly strong employment report sent them rising again by nearly 7%.
Worrying about the presidential election only adds fuel to the fire. Doubts about the direction of the economy (with either candidate) are a big reason why 10-year bond yields increased last month. Interest rates on Treasury bills and the 10-year mortgage are highly correlated and tend to move in tandem.
Long-term outlook for mortgage rates
In recent weeks, bond market investors have panicked about how the next administration’s economic policies could increase government spending and put upward pressure on interest rates. Higher inflation may prompt the Fed to keep interest rates high for longer, delaying additional rate cuts.
Once the election results become clear, there should be less volatility in the bond market and mortgage interest rates. Experts do not expect a significant decline in mortgage rates, regardless of who wins the presidency and how the Fed behaves.
In the longer term, multiple future downgrades and weaker economic data should help mortgage rates fall. There’s a lag between when a central bank starts cutting interest rates and when mortgage rates head into a sustained downward trend, said Jeff Weniger, a CFA and head of equity strategy at WisdomTree Asset Management. It could take two to five years for mortgage rates to reflect the full effects of the Fed’s cuts.
Experts also don’t know the new “low” for mortgage interest rates — it could be 5% or 4% — but it all depends on the evolving economic outlook. Regardless, a return to pandemic-era interest rates of 2% to 3% is unlikely.
Read more: CNET Weekly Mortgage Forecast
Don’t wait for the lowest mortgage rate
Ultimately, there is no way to predict the future of the housing market. Anything could shake the economy, from another major crisis to a sudden spike in inflation. Without a crystal ball, your best solution is to monitor the daily movement of your mortgage rate.
As mortgage rates start to fall, some homebuyers will jump into the market. Others will hold out for lower rates. Waiting too long can also be risky. Last month, mortgage interest rates appeared to be heading toward 6%, but they quickly reversed course. Now, they’re approaching 7% again.
“It’s impossible to guarantee what mortgage rates will do. So you have to take advantage of opportunities when they come,” said Jeb Smith, a CNET Money expert and real estate broker with more than 20 years of experience.
You shouldn’t rush into buying a home (even if prices are down) if it doesn’t make sense for your budget or lifestyle. Taking extra time to build your credit score and putting money aside for a larger down payment will help you in the long run, while also helping you save money on your future mortgage.
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