The Fed Raised Rates—So Why Did Mortgage Rates Drop?

As soon as news breaks of a Federal Reserve rate hike, most people assume mortgage rates will spike accordingly. While it seems intuitively likely that rates would skyrocket in response to such news reports, however, the reality can often differ considerably.

Mortgage rates aren't directly controlled by the Federal Reserve. While its influence can affect short-term interest rates (like what banks charge each other for overnight loans), mortgage rates vary based on other factors like:

• Bond Market: Mortgage rates are closely linked with 10-year Treasury yield. When investors sense economic instability, they frequently shift money into bonds - this often brings mortgage rates down accordingly.
• Expectations for Inflation Reducing: Mortgage rates often decrease when inflationary pressures abate--even following an increase by the Federal Reserve.
• Investor Confidence: Markets react not just to a hike itself but to what the Fed says about future policy decisions as well. If investors believe the hike will help slow inflation, long-term rates could ease off accordingly.

Mortgage rates often decline immediately following a rate increase by the Federal Reserve; market interpretation of their action plays just as vital a role in their effect.

An attempt at timed market timing based on announcements is nearly impossible. When buying or selling, it is wiser to focus on developing a solid strategy, successful negotiations, and understanding your long-term goals as opposed to trying to time the market perfectly.

Bottom line: Don't allow headlines to dictate your decisions in the housing market, which responds differently depending on various factors; with expert guidance and proper decision-making skills in any rate environment.