00:00 Speaker A
While mortgage rates aren’t directly set by the Federal Reserve, they are influenced by its policy stance, and you can see that connection in this chart here, which tracks the average 30-year mortgage rate alongside Fed actions. So what should home buyers keep in mind about current rates, and what’s the outlook for the rest of the year? Joining us now with more insight is Melissa Cohn, regional vice president at William Raveis. So Melissa, we often hear that the Fed doesn’t directly set mortgage rates, but it does influence them. So can you walk us through that relationship and how Fed policy decisions trickle down to home buyers?
01:03 Melissa Cohn
So mortgage rates are really tied to the 10-year treasury yield, uh, which is impacted by the same data that the Fed looks at. So when there’s weak economic data, bond yields go down, mortgage rates go down. At the same time, if the Fed sees that the economy is weakening, then they would be more likely to cut rates based upon that same data. So mortgage rates, bond yields, fed funds rates, all sort of travel in the same direction, generally based on economic data and the rate of inflation.
02:18 Speaker A
Right, economic data, expectations, and given where we’re at in the current environment, what do you think lenders are watching most closely? Is it inflation? Is it Fed signals? Is it the 10-year yields, or all of the above?
02:42 Melissa Cohn
I mean, it’s obviously all of the above because the bond market is going to react to what the Fed does, what the Fed says. You know, if the Fed at the end of this month says that they intend to remain hawkish on inflation and that they’re worried, they continue to worry about the inflationary impact of tariffs on the economy, you know, the bond market will probably react negatively, and that will cause mortgage rates to go up because the fear is that rates will stay higher for longer. If the Fed has the opposite statement, and they take a more dovish look and say that if the rate of inflation remains where it is based upon tariffs and the economy continues to sort of muddle along the way it is right now, the Fed could say that they’d be open to a rate cut, and then the bond market would rally, and mortgage rates would come down.
04:12 Speaker A
So with the Fed widely expected to hold rate steady at its July meeting, maybe a cut in September, what’s your call at least directionally on where mortgage rates could be heading in the second half of the year?
04:34 Melissa Cohn
I mean, we continue to see that, you know, the employment sector is stronger than the market was expecting but not as strong as it has been. So, weakening employment sector, we’ve seen other weakening areas in the economy and that the rate of inflation, while it’s gone up a little bit on the retail level, uh, this past month, is still pretty much in line where, you know, the rate of inflation has been. So my hope is that the Fed will cut in September and will indicate that further cuts are potentially will happen at the end of the year and that mortgage rates will settle down. I think it’s all going to be based on what the Fed says at the end of the month and what they do in September, but my expectation is that we will see lower rates by the end of the year.
05:56 Speaker A
And if the Fed does end up staying on hold longer for than we expect, which has become a more likely scenario in recent weeks, could we see mortgage rates stick near that 7% level, or are there other factors that could maybe bring some relief for buyers even if we have this higher for longer interest rate environment?
06:30 Melissa Cohn
Well, you know, the bond market is very reactionary, and bond yields move up and down every day based upon current economic data, based upon geopolitical events, and a lot of other things. So the bond yields can drop, and mortgage rates can drop even if the Fed doesn’t cut rates.
07:23 Speaker A
And for people on the fence right now, do you recommend buying and refinancing later, or waiting it out? What’s the smartest move in this market that can be a little bit confusing?
07:42 Melissa Cohn
You know, if you’re looking to buy, it’s really about finding the right house, not about finding the right mortgage rate. So I would tell you to buy when you find that right home. And then if you can buy and you can afford the home at today’s interest rates, when, hopefully, rates come down, you can always refinance. And then, you know, it’s a win-win situation.