Awaiting U.S./China Outcomes

Last Week in Review: Fed Rate Cut Coming — But Don’t Wait

U.S. Bond yields and home loan rates ticked modestly higher this week as the world watches the U.S. and China have their first serious talk since July. There is a growing sentiment that the U.S. and China will agree to some short-term measures like a postponement of tariffs, while the two sides work on a more comprehensive agreement.

A short-term agreement or small win with U.S. and China would be good news, and home loan rates hate good news, hence a reason for the modest uptick in rates.

Also pressuring rates higher is the notion the Fed will once again cut rates on October 30. Yes, a Fed rate cut is putting pressure on home loan rates. A Fed rate cut is designed to help the U.S. economy avoid a recession, while increasing inflation. Both of which are bad news for long-term Bonds like mortgage backed securities, which price home loan rates.

For folks considering a new mortgage, it is important to note that home loan rates literally stopped improving once the Fed started cutting rates back on July 31st — look at the chart below.

So, don’t wait until October 30 and think rates will be .25% lower because the Fed will be cutting the short-term Fed Funds Rate. Home loan rates could be lower by month’s end, but the driver will more likely be the outcome of the U.S./China talks and not what the Fed is doing.

Bottom line: home loan rates remain right near three-year lows as the financial markets watch the outcomes of the U.S. and China talks. Good news will limit how much home loan rates can improve. The opposite is also true.