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BY: MATTHEW GRAHAMSep 13 2019, 3:17PM

Mortgage rates were already having their worst week since 2016 as of yesterday afternoon.  Rather than help to heal some of the damage, today’s bond market momentum only made things worse.  Whether we’re looking at 10yr Treasury yields a broad indicator of longer-term rates or average mortgage lender offerings, this week now ranks among the top 3 in the past decade in terms of the overall move higher.  At this point, we’d have to go back to the trauma of 2013’s ‘taper tantrum’ to see anything bigger.

Few, if any, news articles or various mortgage rate indices have had a chance to catch up with the move.  This is especially true of the widely cited Freddie Mac data that circulated yesterday.  It indicated a 0.06% increase in rates from the previous week.  It was already significantly outdated by yesterday afternoon, but the gap between there and reality is now truly staggering with the average lender’s week-over-week jump hitting 0.30% by Friday afternoon.

I’ve heard a lot of talk and received more than a few questions about next week’s Fed announcement.  There seems to be a misconception about what the Fed rate cut can and can’t do for mortgage rates.  It’s important to understand that the Fed absolutely does not set conventional mortgage rates nor would a rate cut from the Fed have an bearing on the mortgage world.  That’s because next week’s Fed rate cut has ALREADY had a bearing on the mortgage world! 

The Fed only meets to potentially change rates 8 times a year.  The bond market that underlies mortgage rates, however, can change 8 times in less than a second.  Markets have LONG since priced in the Fed’s likely course of action (currently seen as 100% chance of a 0.25% rate cut).  So when the Fed cuts rates next week, mortgage rates won’t care.  Instead, mortgage-backed-bonds will be more interested in what the Fed has to say about what it might do in the future, and that conversation could go either way.  The bottom line here is that the Fed could cut its policy rate and mortgage rates could still move higher.  This flow of events is not-at-all uncommon.

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