Tomorrow, the Federal Reserve is expected to raise interest rates for the first time in years. The odds according to CME FedWatch are somewhere between 85 and 90 percent. Financial media will cover it like breaking news. And a lot of homebuyers will be watching, waiting to see what happens to mortgage rates before they make a move.<\/p>\n
Here is the problem with that plan.<\/p>\n
Your mortgage rate has already reacted. It did it weeks ago.<\/p>\n
Mortgage rates are not credit card rates. They are not car loan rates. Those types of debt are directly tied to the federal funds rate, which is why they move in lockstep with Fed decisions. When the Fed raises rates, those go up. When the Fed cuts, those come down. It is a fairly direct relationship.<\/p>\n
Mortgage rates work differently. The 30-year fixed is benchmarked off the 10-year Treasury note, which is a tradable commodity that moves every single day based on what the market believes is coming. Investors buying and selling those bonds are constantly pricing in expectations about inflation, economic data, and Fed policy.<\/p>\n
By the time the Fed actually announces a rate change, the mortgage market has almost always already moved. August CPI came in hotter than expected on September 11. The August jobs report surprised to the upside before that. Fed Chair Warsh struck a hawkish tone at Jackson Hole. Each of those data points nudged the market further in the same direction. The 30-year fixed is sitting at 6.88 to 6.91 percent right now, a one-year high, and the Fed has not done anything yet. That is the market doing what it always does: pricing in what it believes is about to happen before it happens.<\/p>\n
Here is something I have watched play out in real time that most consumers never see coming.<\/p>\n
Markets do not just react to what the Fed does. They react to the difference between what the Fed does and what the market expected it to do.<\/p>\n
I have seen the Fed cut rates by 0.25 percent when the market was pricing in a 0.50 percent cut. The Fed cut rates. Mortgage rates went up. That sounds backwards, but it makes sense when you understand the mechanics. The market had already positioned itself for the larger cut. When the smaller move was announced, traders sold bonds, prices dropped, and yields, which move opposite to prices, rose. The result was higher mortgage rates on the same day the Fed cut.<\/p>\n
The same dynamic can flip the other direction. If the Fed holds rates steady tomorrow when 85 to 90 percent of the market expects a hike, bond buyers could rush back in, yields could drop, and mortgage rates could actually fall by Thursday morning. Good news from the Fed does not guarantee good news for rates, and a hike does not guarantee they go higher from here.<\/p>\n
Even if tomorrow’s decision goes exactly as expected, the rate picture does not clear up just because the Fed announced something.<\/p>\n
I have seen situations where the Fed delivered exactly what the market wanted, and rates still moved the wrong direction within hours. In one case it was an international event, a supply disruption overseas, that triggered a surge in oil prices and a wave of economic uncertainty that sent investors back into defensive positions. Fear of what might happen next kept the market positioned in bonds, which kept rates elevated regardless of what the Fed said.<\/p>\n
That kind of thing is not predictable. Not by me, not by economists, and definitely not by a homebuyer trying to time their rate lock around a single announcement. I have been in this business long enough to know that the people who wait for perfect clarity on rates are the ones who end up frustrated, because that clarity rarely comes in a clean, obvious form.<\/p>\n
If you are actively shopping for a home and your rate is not locked, the question worth asking right now is not “what will the Fed do tomorrow?” It is “can I live with the rate available to me today?”<\/p>\n
Because the rate available today already reflects a near-certain hike. If the hike lands as expected and the market has priced it correctly, rates may not move much. If something surprises the market, they could move in either direction and you will have no warning before it happens.<\/p>\n
Use the Mortgage Payment Calculator<\/a> to run your actual numbers at today’s rate. Then run them again at a rate 0.25 percent higher. If the difference is something you can absorb and the home makes sense at today’s payment, waiting for a better rate is a risk, not a strategy.<\/p>\n If you want to understand how today’s rate affects what you actually qualify for, the Mortgage Pre-Qualification Calculator<\/a> will show you where you stand at current market rates, not the rates from three months ago.<\/p>\n The media will tell you tomorrow whether the Fed hiked or held. What they will not tell you is whether your mortgage rate went up, down, or sideways as a result, because that depends on forces the headline does not capture. I have covered exactly this dynamic before, including how a geopolitical event moved rates faster than any Fed meeting ever has, in this earlier post<\/a>.<\/p>\n The rate you can lock today is real. What the market does after tomorrow is not something anyone can guarantee.<\/p>\n Run your numbers at today’s rate before Wednesday: Mortgage Payment Calculator<\/a><\/strong><\/p>\n See how these decisions play out in a real buyer scenario in our case study<\/a> or learn more about YourMortgageToolbox<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Tomorrow, the Federal Reserve is expected to raise interest rates for the first time in years. The odds according to CME FedWatch are somewhere between 85 and 90 percent. Financial media will cover it like breaking news. And a lot of homebuyers will be watching, waiting to see what happens to mortgage rates before they … Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-103","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/posts\/103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/comments?post=103"}],"version-history":[{"count":0,"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/posts\/103\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/media?parent=103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/categories?post=103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.yourmortgagetoolbox.com\/blog\/wp-json\/wp\/v2\/tags?post=103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}