Mortgage Rates Decline to Lowest Level Since Late 2022 Ahead of Anticipated Fed Rate Cut

The average rate on a 30-year fixed mortgage decreased by 12 basis points to 6.13% on Tuesday, marking the lowest level since late 2022. This decline comes as investors in mortgage-backed securities position themselves ahead of an expected rate cut by the Federal Reserve.

Matthew Graham, chief operating officer of Mortgage News Daily, noted the similarity to September 2024, stating, "The overall set-up is reminiscent of September 2024 when rates were doing the same thing for the same reasons ahead of Fed meeting with a virtual 100% chance of a rate cut." He cautioned that, as in 2024, mortgage rates could paradoxically rise after the Fed's rate cut, though this outcome is not guaranteed.

Willy Walker, CEO of commercial real estate firm Walker & Dunlop, highlighted historical patterns, explaining that in recessionary environments, Fed rate cuts tend to lower long-term rates. However, in non-recessionary periods like the current one, such cuts may not significantly impact long-term rates. Walker anticipates at least a 25 basis point cut, possibly followed by another, but does not expect substantial effects on long-term rates.

He also suggested that current yields are likely to rise in the coming weeks, adding, "I don't try to predict where rates are going, but I think people... might buy on the rumor and sell on the news. I think you probably see the 10-year sell off a little bit after the Fed actually announces their 25 basis point cut."