The Fed Cut Rates… But Your Mortgage Won’t Drop. Here’s Why

When the Federal Reserve cuts interest rates, headlines explode and everyone assumes mortgage rates will instantly drop. It’s a common misconception, but the truth is more nuanced.

Mortgage Rates Don’t Track the Fed Funds Rate

Here’s the key: a 30-year mortgage doesn’t follow the Fed’s short-term rate. It actually tracks the 10-year Treasury yield, which reflects long-term investor sentiment about inflation and economic growth.

So even if the Fed reduces the federal funds rate, your mortgage rate won’t necessarily budge unless the 10-year yield falls meaningfully. If that yield remains stable, mortgage rates do too, regardless of what the Fed announces at its latest press conference.

Low Mortgage Holders Aren’t Selling Anytime Soon

There’s another reason the housing market won’t feel instant relief: nearly 60% of U.S. homeowners hold mortgages below 4%. These are “golden handcuffs.”

Even with a modest rate cut, few homeowners will trade their ultra-low mortgage for a new loan at 6% or higher. That means inventory remains tight, and tight inventory keeps prices sticky. In other words, homebuyers hoping for big price drops will likely be disappointed, at least for now.

Where the Money Moves First

While housing affordability might not improve right away, other parts of the market react faster. When rates start falling, sectors that rely heavily on borrowing like commercial real estate and REITs, often attract early investor attention.

These markets thrive on cheaper financing, so they’re typically the first to show momentum when an easing cycle begins.

The Bottom Line

Rate cuts signal a shift in monetary policy, but their effects ripple through the economy unevenly. Mortgage rates depend more on bond market trends than Fed announcements, and homeowners with low mortgages will continue to constrain supply.

So yes, the Fed has begun easing but don’t expect housing affordability to suddenly improve. The path ahead for homebuyers and investors will be gradual, driven by long-term yields, inventory trends, and shifting investor sentiment.

Disclaimer: The information provided in this blog is for general informational purposes only and should not be taken as professional advice. While every effort is made to ensure accuracy, no guarantee is given regarding the completeness or reliability of the information. Readers should conduct their own research or consult qualified professionals before making any financial, legal, or personal decisions. The views expressed are personal opinions and do not necessarily reflect those of any affiliated organizations.