Why do 30 year mortgage rates continue to rise, while the fed continues to lower the fed funds rate?
Mortgage
thatguy2007 asked:
It seems as though when money is more readily available, the 30 yr mortgage rates should drop.
Raul
It seems as though when money is more readily available, the 30 yr mortgage rates should drop.
Raul
May 26th, 2009 at 8:32 am
Danny
The lenders are trying to recapture their losses. The fed funds are also for short term money loans & a mortgage is not a short term money loan.
May 28th, 2009 at 11:48 pm
Eugene
30 years is a long time.
Interest rates aren’t going to stay at 1% forever.
The interest rate cuts tend to affect short term borrowing.
May 30th, 2009 at 5:30 am
Dolores
the fed rate you’re refering to is the rate for overnight borrowing to what is in the industry referred to as window loans - loans that keep the banks liquid amounts where the government requires.
funding for mortgages, which are long term by nature, comes from investors. there are still too many nervous people hessitant to invest in mortgages again.
so basically, these two pools of money come from different sources and while one might be inclined to think they should move the same direction, there is nothing that really ties them together.
June 1st, 2009 at 8:07 pm
Anita
You have to understand that the economy is still on a downward spiral and the government, including the FED, is trying to figure this mess out. Although the bailout plan has been passed, it is not in affect right now and it may be some time before it is implemented, causing most banks and other lenders to hesitate dropping mortgage rates.
Eventually, everything will work itself out and banks will get back to lending, but there will be much broader oversight and loans for business and home purchases will not be as easy to get as they were in the past.
June 4th, 2009 at 4:48 pm
Sarah
The Federal Reserve does not set mortgage rates. The market for mortgage backed securities drives rates. With the government taking over Freddie and Fannie, in the longer run rates should come down because the Treasury is guaranteeing those securities explicitly so there is no difference in the risk between Treasuries and Freddie and Fannie securities, but there is still a huge spread in the yields on those two investments. Once the market recognizes this, the yields on the MBS should fall in line with Treasuries of the same maturity. There may be a small difference for liquidity premiums and transaction cost, but not the huge difference that has existed and grown for the last year.
Talk about inflation has caused rates to rise in the last week or so, but flagging consumer confidence and, therefore, reduced spending should help to mitigate those concerns and rates will come back down.
I hope this answer was helpful.