Home lenders were already pricing in a 25 basis-point Federal Open Market Committee cut as a key monetary meeting got underway Tuesday, suggesting that it'll take an outcome beyond that for them to move lower.
"If they cut 25 basis points and the narrative is neutral, and reasonable people can disagree or debate what neutral means, I don't see mortgage rates coming down on Thursday," Better.com Chief Financial Officer Kevin Ryan said in an interview.
What could move the needle for a market where
A dovish statement which indicates officials are not worried about a big spike in inflation, could drive mortgage rates under 6% by the end of the month, he said.
But a hawkish statement expressing concern over rising prices "could actually push the 10-year up to 4.30% at which point rates could go back to 6.5%," Ryan said.
"In general, I have been suggesting that my clients wait until the Fed meeting on Wednesday and then be ready to lock [in a rate] if the market reaction is not what we are expecting," said Melissa Cohn, regional vice president of William Raveis Mortgage.
"If the Fed delivers as expected, rates may hold steady, but any sign of fewer cuts later this year or early next year or hesitation could push them higher. The smart move is for consumers to act now if a loan makes sense," said Bill Banfield, chief business officer, Rocket Cos.
Where the market stood as the Fed meeting got underway
Both the 10-year Treasury and bonds backed by home loans pointed to a pause in falling mortgage rates on Tuesday but experts awaiting more information from the Fed generally were anticipating the long-term downward trend would persist long-term.
"We're seeing mortgages wider today for two reasons. We're getting some asset managers selling into profit taking. Also, there's been more origination," said Walt Schmidt, senior vice president, mortgage strategies, FHN Financial, in an interview.
"From an MBS investor standpoint, mortgages need a little bit of a breather. We're getting it today, ahead of the Fed. But from a primary mortgage rate standpoint, it's been nothing but positive for borrowers," the mortgage-backed securities strategist said.
While there's been caution around equating a short-term Fed cut or Treasury bond moves with mortgage rates, Dan Habib, chief revenue officer at Highway.ai said they have been in step recently.
"If I were to show you a historical long term chart of the Fed funds rate and 30-year mortgage rates, they correlate very well over time," he said in an interview.
Lenders have priced in a Fed cut before it occurred because they have read
"With only two Fed committee meetings left until next year, and considering consumers are showing increasing signs of stress as inflation remains stubborn, we may see a rate cut at every meeting until 2026," Foundation Mortgage CEO Marc Halpern said.
"Our view is that the Fed will keep cutting through the end of the year, and three cuts by year-end is a reasonable expectation," Tomo Mortgage CEO Greg Schwartz said.
The majority or
"Even a modest cut could be enough to bring some of them back into the market," he said.
Why lenders think there will be a series of small cuts
While there has been some speculation around the Fed announcing a 50 basis-point cut, most were only pricing in 25.
"The
An executive at high-volume lender United Wholesale Mortgage long term is optimistic about how mortgage rates will move going forward over the long-term even if there's just a 25 basis point cut.
"With the anticipated rate cut this week, combined with other promising economic indicators, we're optimistic about continued progress in rates coming down," UWM Chief Strategy Officer Alex Elezaj said in a statement.
UWM has already offered rates below 6% in some cases, and reports "significant increase in loan volume across the board, particularly with 30-year fixed mortgages."
The company expects this momentum will keep building.
That could be an operational challenge in addition to an opportunity for some lenders.
Challenges and risks related to lenders' rate outlook
The expected rate cut is likely to release a wave of new volume, which is an opportunity, but also a "serious readiness test" for mortgage lenders, Geoff Green, managing director, Mortgage and Lending at Salesforce, said in a statement.
"The lenders that will come out ahead will be those with the technology built to accommodate the need for scale," he said.
While lenders largely anticipate lower rates, it is possible that those expectations won't be met.
"If inflation persists or unexpectedly increases, it could cause mortgage rates to rise again," Cotality Chief Economist Selma Hepp warned in an emailed statement.
Also, the inventory shortage also remains a problem and a small drop in mortgage rates may not be enough for some homeowners to sell, particularly given any increase in buyer demand "could put upward pressure on home prices," she said.
