Mortgage rates aren't lower yet

It's been a week now since the Fed lowered their rates 0.5%, but mortgage rates haven't dropped at all. Everyone in Oahu seems to be wondering if mortgage rates are going to come down so that the price of real estate will be more affordable. If rates go down, prices can go up, because it's cheaper to borrow money. With the average price of real estate Oahu around $650,000, even a little bit lower mortgage will be helpful.

But in fact, rates are higher now than they were last week. Why? When the Fed lowered the Funds rate, the stock market rallied for several days straight, which sent bond prices down. Whenever money flows into stocks, money flows out of bonds (usually) which send the rates of bonds up.

Bond rates move in the opposite direction as bond prices. So as stocks moved up this past week, bond rates moved up, even though the Fed funds rate is lower. But over time, probably a few weeks, bond prices will come back as more money flows in. So rates should come back down by next month. If the Fed keeps dropping its rate, chances are bond prices will continue to go up slowly over time.

However, during the period from 1999 to 2001, the Fed lowered rates several times while mortgage rates actually went up. Yes, UP. So does the Fed have an effect on mortgage rates at all? Probably not. Mortgage rates are more controlled by the economy and the stock market.

So don't hold your breath for lowere mortgage rates, but do watch the economy because ultimately that drives rates and the prices of homes.