Mortgage Rates Fall: But Could Fed Pushback On March Rate Cut Dent Homeowner Hopes?

Author: Neil Dennis | February 01, 2024 04:07pm

Mortgage rates moved lower again last week, after rising in three of the previous four weeks.

This will come as a welcome relief to the hundreds of thousands of homeowners and loan applicants, who followed Wednesday’s Federal Reserve outcome with trepidation.

Mortgage rates are highly influenced by the Federal Reserve’s Fed funds rate. Indeed, all kinds of rates and indexes are linked to the base rate — from bank lending and savings rates to credit cards.

The Fed funds rate peaked in July last year at 5.25%-5.5% and roughly three months later, the average 30-year mortgage peaked at 7.79%, according to data from mortgage services broker Freddie Mac.

But while the Fed hasn’t moved on its main interest rate since July, the mortgage rate, since the October high, has fallen to 6.63% as of last week on expectations the Fed will soon start to cut rates.

Fed Pushes Back On March Cut

Some observers are now fearing mortgage and other loan rates could move higher again, after the Fed, on Wednesday, pushed back hopes of a March rate cut.

Powell made it clear to markets expecting a March cut: “I don't think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that.”

Markets made it clear that they didn’t like Powel’s take. When the trading session was over, the S&P 500 was 1.6% lower. The SPDR S&P 500 (NYSE:SPY) — the exchange-traded fund that tracks the index — also fell 1.6%.

Also Read: Mortgage Rates Soar, Cash Buyers Score: The New Homebuying Playbook

Homebuilders Mount Recovery

On Thursday, markets rallied modestly and homebuilders were encouraged by the fall in mortgage rates, with D.R. Horton (NYSE:DHI) and Lennar (NYSE:LEN) the two biggest stocks in the sector both added around 2%.

The iShares U.S. Home Construction ETF (NYSE:ITB), an exchange-traded fund that tracks the homebuilders sector, gained 1.5%.

Sam Khater, Freddie Mac’s chief economist, said of the latest fall in mortgage rates: “Although affordability continues to impact homeownership, the combination of a solid economy, strong demographics and lower mortgage rates are setting the stage for a more robust housing market.”

The most recent mortgage application data indicated that affordability was still very much an issue. In the week to January 26, applications slumped 7.2% according to data from the Mortgage Bankers Association.

Residential REITs Dip

Residential real estate investment trusts, however, remained mostly on the losing side of the S&P 500 index.

Equity Residential (NYSE:EQR) fell 0.4%, while Avalon Bay Communities (NYSE:AVB) fell 1.5%.

The iShares Residential and Multisector Real Estate ETF (NYSE:REZ) inched 0.3% higher.

Now Read: Markets Believe The Fed Got It Wrong: Rate Cut Reluctance Rattles Investors

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