If you are reading this, you have a desire to out from a 40-year season Mortgage man what is going on with interest and the economy. We need to explore what the mortgage rates and the stock market are going to do when the Federal Reserve Bank lowers its Fed Funds rate. The Federal Reserve or the “FED” does not control mortgage rates, they control the rates that independent banks can borrow from the Fed and this in turn is the underlying cost of money. When the Fed lowers interest rates, they lower the interest rates that banks borrow from the Fed overnight or commonly called the overnight lending rate or the Federal Funds rate. This is not directly connected to mortgage rates it does lower the cost of money to the banks so the lower the cost of money to the banks the lower the costs can be pushed out to consumers in the form of Mortgage rates and other loans banks make.
That said, all indications from the Fed are that they are going to lower the Fed funds rate from a target range of 5.25-5.50% to a possible target range of 5.00-5.25%. This means that the rates banks borrow from the Fed will go down. The hope is that this will translate to lower mortgage rates. The Fed is expected to lower interest rates by .25%-.50%, and if this happens the mortgage market has already factored that into the current rates, so when they announce they are lowering interest rates and they lower them by .25%-.50% we will not see a major move downward in long=term Mortgage rates as the markets have already anticipated this move. If the Fed lowers the rate by .25%, we may see mortgage rates go up a bit and if it is .50% we may see a slight lowering of mortgage rates but no major moves downward. The most important part of the announcement won’t be the announcement of actually lowering the interest rates, it will be what they intend to do in the future and that will move the markets more than the actual move downward in September.
If the Federal Reserve sees strength in the economy, from the numbers given to them by the Federal Government’s Bureau of Labor and Statistics (BLS) they will probably only lower the rate by .25% if the BLS number indicates a weakening economy the initial move downward will more likely be as high as .50%. If the numbers look worse than they anticipated, they may lower the rates by a larger number and that would move mortgage rates lower significantly. I and others who have been watching the Fed for decades know that they are far quicker to raise interest rates than to lower them. This is why we anticipate a max movement of .50% which has been, for the most part, factored into the current mortgage rates.
Current conventional mortgage rates have lowered into the 6’s with the anticipation of the Fed moving to lower interest rates. FHA and VA home loans are in the low 6’s to high 5’s. I am not anticipating the Fed to lower their rate lower than .50% and the markets have factored that in as well so anything different from the Fed or an announcement that the trend will be to lower rates throughout the year will have an immediate lowering of mortgage rates anything less will immediately raise mortgage rates.