If you’ve been keeping an eye on mortgage rates, you’ll know they’ve been a bit of a roller coaster lately – with ups and downs and ending up pretty much at the same place we started.  However, last Friday, Federal Reserve Chairman Jerome Powell gave a pivotal speech at the Jackson Hole symposium that could signal where rates are heading soon. But here’s the real question: what does that mean for you if you’re thinking about buying a home or refinancing?  Let’s break it down.

What Did the Fed Chairman Say?

In his speech, Powell opened the door to a potential interest rate cut in September, especially if the job market shows more signs of slowing down.

When the Fed shifts its policy, it usually has a ripple effect across the economy, on people’s jobs as well as this impacts the Stock market because, well, if Company ABC can now borrow money at a lower interest rate, they are likely to borrow more in order to grow the company, and then demand for stocks in ABC Company will increase.  This growth also results in jobs being created, putting more money into the hands of working people.  This is a microscale example but imagine how many companies would grow if they could borrow money at a lower interest rate to fund that growth.

But if the Fed’s interest rates remain high, then ABC Company may hold off, less jobs are not created, and fewer investors will invest in the company’s stock.  Beyond this, some companies will lay off employees if they’re concerned that the economy may not grow or if it might even shrink.   

All this also impacts the Bond market, which is what drives the Mortgage Interest Rates.  If folks are concerned the economy may slow down, they might move more of their investments from riskier Stocks to safer, longer-tem Bonds.  A popular longer-term Bond that is commonly referenced is the 10-Year U.S. Treasury Yield.  If demand increases for these bonds, the Treasury can lower the interest rate it is offering with them in order to balance Supply & Demand.  Mortgage Interest Rates follow the same path as the 10-Yr U.S. Treasury Yield, so if the Treasury’s interest rate offered is reduced, then Mortgage Interest Rates will be reduced, too.

Mortgage Rates Have Already Responded

After Powell’s speech, both the Stocks and Bonds markets responded swiftly. By Friday afternoon, mortgage rates dipped slightly – falling almost 0.1% just within hours. Not a huge drop, but enough to grab attention.  Now interest rates are at one of the lowest levels we’ve seen in months.

Why does that matter?  Even a small change in your interest rate can save you hundreds of dollars per month, and thousands of dollars over the life of your loan!

What This Means If You’re Thinking of Buying a Home

• Affordability might improve. Lower rates mean lower monthly payments, which could help you qualify for more home.
• More buyers may return. If rates keep trending down, competition for homes could heat back up.
• Now might be that special sweet spot with lower rates and lower prices on homes. If you’ve been waiting for the “right time,” this could be your window to get pre-approved and ready to move quickly while competition is still relatively low and interest rates have dipped.

What This Means If You’re a Homeowner

• Refinance opportunities could return.  With lower rates, homeowners will have the chance to refinance and drastically reduce their monthly Mortgage payments!
• Tapping into equity. Lower rates can also make it easier to use your equity for things like renovations, debt consolidation, or other financial goals.

What’s Next?

The Fed’s next meeting is September 16-17 and at 1pm on the 17^th, the Fed will announce whether or not there is a rate cut, and how much of one.  Between now and then, two reports – one on jobs and one on inflation – could influence whether they actually do cut rates.  

To manage public expectations, the current Fed chairman, Jerome Powell, reminded us in his speech that as rates come down, we will likely level off and hold steady at rates that are higher than in previous years – especially higher than those rates during the pandemic.

The Bottom Line

The Fed doesn’t set mortgage rates directly, but its decisions definitely steer them. Jerome Powell’s speech is a signal that relief could be on the horizon for buyers and homeowners who have been affected by the rise in interest rates since 2022.

If you’re thinking about buying, refinancing, or just curious how these changes could affect your situation, now is a smart time to talk with a mortgage professional like me to come up with a personalized strategy that best fits your financial goals. Call me today at (214) 542-4095 or email Rob@TeamRobHomeLoans.com.  I would be delighted to help!