The Fed reduced the Fed Funds rate by 0.75% in the last few months, but mortgage rates have not come down. 

Currently, the Freddie Mac Primary Mortgage Market Survey shows the 30-year fixed mortgage rate at 6.84%. You can see the rate increased after the Fed decreased the Fed Funds rate in mid-September. 

The Fed reduced the Fed Funds rate to stave off increasing unemployment.  Yet, US Treasury Bond rates and mortgage rates have not decreased.  Why?

 

One reason is the Federal Debt.  The Debt is at a record high of $35.46 trillion. The Federal Debt is nicely explained atfiscaldata.treasury.gov. The Debt is the accumulation of the amount of money borrowed by the Federal government over time to cover the outstanding balance of expenses incurred. In a given year, when spending exceeds revenue, a budget deficit occurs. To pay for the deficit, the government borrows money by selling securities such as Treasury Bonds, bills, and notes. As the government incurs annual deficits, the debt grows.

 

 

There has been a deficit every year since 2001, which was the last year there was a surplus.  As explained at fiscaldata.treasury.gov, the size of the deficit is influenced by the health of the economy and spending and revenue policies set by Congress and the President. When citizens and businesses are making less money, the amount collected by the government decreases. When the economy is doing well, the government collects more. Legislation increasing spending can increase the deficit.

As the government issues more bonds to pay for the debt, the supply of bonds increases resulting in higher rates. Mortgage rates follow bond rates. So, how can rates decrease? Federal policy. We’ll be watching the policies of the next Congress and Administration to see what they will do and how it will influence rates. We’ll keep you posted.

Meanwhile, existing home sales prices went up 3.9% over the last year, coming in nationally at $407,200 according to the National Association of Realtors.

If you are looking to finance real estate, either residential or commercial, give us a call. This is what we do everyday, and can help find the right loan for you.