WSJ Your Money Briefing - The Fed Is Cutting Rates. Why Aren't Mortgage Rates Falling?

Episode Date: November 11, 2024

The average rate on a 30-year fixed mortgage has trended higher since the Federal Reserve’s first rate cut in September – and it might keep climbing. Wall Street Journal deputy personal finance bureau chief Ben Eisen joins host J.R. Whalen to discuss what this means for prospective home buyers.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges, the Goldman Sachs podcast featuring exchanges on the forces driving the markets and the economy, exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Hey, listeners, before we get into today's episode, we want to hear from you. What financial goals are you setting for yourself in 2025? Whether it's paying off debt, building an emergency fund, or saving for that dream home. Share your plans with us.

You could be featured in an upcoming episode of Your Money Briefing. Send us a voice note to ymb at wsj.com or 212-416-3413. And now on to the show. Here's your money briefing from Monday, November 11th. I'm JR Whalen for The Wall Street Journal. The Federal Reserve has dropped interest rates by three quarters of a percentage point since September, but mortgage rates have not followed suit. Short-term rates and long-term rates are connected with each other, but just because short term

rates are falling doesn't mean long term rates are as well. And more recently, long term rates have been rising in response to a lot of different factors. We'll ask WSJ's Ben Eisen to explain what that means for prospective home buyers and when they could see some relief. After the break. Balance your trading strategy by adding futures. CME Group helps you manage risk and capture opportunities in all market environments. Capitalize on around-the-clock access to highly liquid global futures and options markets across all major asset classes. Visit your online broker and get started. See what adding futures can do for you at cmegroup.com slash podcast. Derivatives

are not suitable for all investors and involve the risk of losing more than the amount originally deposited in any profit you might have made. This is not a recommendation or offer to buy, sell, or retain any specific investment or service. While the Federal Reserve has lowered interest rates for the second straight session, 30-year mortgage rates on average have been rising since early October and are approaching 7%. Wall Street Journal Deputy Personnel Finance Bureau Chief Ben Eisen joins me to explain why. Ben, what's the difference between mortgage rates and the interest rates that the Fed

lowered on Thursday? So the rates that the Federal Reserve lowered on Thursday is the federal funds rate, and that's a bank lending rate, which is a short-term rate. Mortgage rates are based on a long-term rate. They tend to move up and down along with the 10-year treasury yield, which has been rising. In your story, you write that the central bank wants to push down the cost of borrowing for homes, cars, and other purchases. So why haven't mortgage rates moved lower with the other interest rates?

So the Fed does want to lower borrowing costs for consumers, but they can't directly control that short-term rates and long-term rates are connected with each other. But just because short-term rates are falling doesn't mean long-term rates are as well. And more recently, long-term rates have been rising in response to a lot of different factors. One, the Federal Reserve is cutting rates when the economy is strong. The outlook for growth looks pretty good. That helps push up long-term interest rates.

Additionally, you had the election of President-Elect Donald Trump, and some of his stated policy goals are also seen as pushing up long-term rates because investors think deficits will grow, inflation could rise along with the tariffs he's proposed. All of that factors into these higher long-term rates because investors think deficits will grow, inflation could rise along with the tariffs he's proposed, all of that factors into these higher long-term rates, which in turn push up mortgage rates.

It seems like there's a disconnect because stocks also rose last week, but would higher mortgage rates cut into the housing market, which is such an important economic indicator? Well, the housing market has been pretty cool for a number of years now and home sales have been declining, people haven't been putting their houses on the market and yet the economy continues to chug along. So yes the housing market is one very important part of the economy but it is not the only part of the economy. How common is it for mortgage rates and the other rates to move in opposite directions? It really depends what's going on in the world and

right now is sort of a unique time. One thing that's unique about it is that the Federal Reserve is cutting rates at a time when the economy is somewhat strong. Oftentimes when the Fed is cutting rates the economy is weakening rapidly and the Federal Reserve is racing to kind of contain a weakening economy. Think about 2008 when everything sort of imploded at once. How do economists expect mortgage rates to trend going forward? People generally expect rates to fall over time. The Fed is cutting rates. Eventually that should factor into borrowing costs.

You're seeing other borrowing costs inch down, not to the same extent as the Fed's actual cuts, but there is a sense that eventually as it starts to flow through the economy, you will see mortgage rates fall. That said, a lot of people say these higher for longer rates are gonna be with us. So even if mortgage rates inch down, they're probably not going back to the 2%, 3%,

30-year fixed rate that we saw a few years back Mortgage rates on average are approaching 7% Are there rates out there below the average and what kind of research should perspective homeowners do to save money? The average rate that Freddie Mac produces each week is simply that it's an average the rates on offer are below that and above that Simply that, it's an average. The rates on offer are below that and above that. Over the last few years, as we've had these high mortgage rates, the difference between the low rate and the high rate

has gotten wider, meaning there's basically a benefit for shopping around. And there's a lot of different variations in rates, depending on which lender you talk to. Talking to a lot of different lenders generally gets you a lower rate. That's the advice that financial experts tend to give to people in the market for a mortgage. What factors in someone's personal finance would help them secure a lower mortgage rate?

Well, mortgage rates, like any type of borrowing cost, depend on your credit. They're underwritten based on your credit score, your income, how much in assets you have, how large the loan is relative to your assets and income. The better your financial profile is, the lower the rate you tend to get is. That said, again, rates can be somewhat random, and the more you shop around, the better rate you are likely to get. You mentioned that the Fed might continue to lower short-term interest rates, and that could cause mortgage rates to move lower.

What else in the economy could cause average mortgage rates to trend lower? If you do see sort of a substantial weakening of the economy, at which point the Fed kind of needs to cut to keep the economy from getting significantly worse very rapidly, that's sort of when you see mortgage rates drop very fast. So think about at the beginning of the pandemic when the Fed was racing to cut interest rates because the economy was shutting down. That's when you got those mortgage rates that were around 2%, 3%. That's WSJ reporter Ben Eison.

And that's it for your money briefing. This episode was produced by Ariana Asparborne with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.