Have you ever shaken a wrapped present to guess what’s inside? Well, that’s what happened to mortgage rates this week. They bounced around as markets wondered if the Federal Reserve will give us a rate cut at its next meeting.
The average rate on the 30-year fixed-rate mortgage fell eight basis points to 6% APR in the week ending Dec. 4, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of a percentage point.
Mortgage markets don’t like surprises. After some big swings earlier in the week, mortgage rates eased as data trickled in showing some labor market softness. As of Thursday morning, most forecasters expect the Fed will aim to boost employment by cutting the federal funds rate by 25 basis points at its Dec. 9-10 meeting.
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Will they or won’t they?
Lately, wondering if the Fed will cut rates is like asking if the big-city lawyer will fall for the small-town Christmas tree farmer. Sure, the plot appears to be headed that way — but only after weeks of mixed signals and on-again, off-again drama.
Even if a December rate cut feels fairly certain, not everyone at the Fed is enthused about it. If the committee’s last meeting minutes are any indication, there’s sure to be some heated debate.
And a reminder: The Federal Reserve doesn’t set mortgage rates directly, but its federal funds rate can set the tone for what mortgage rates will do. Despite lower average mortgage rates this week, refinance applications were down, reports the Mortgage Bankers Association, as would-be refinancers hang tight in hopes of lower rates in the future.
No takesies-backsies
Lower mortgage rates sound great, especially if you’re a homeowner waiting to refinance. But even as many borrowers are hoping for a rate cut, it’s not an easy call for the committee. If the Fed cuts rates too fast too soon, it could reheat inflation and overstimulate the economy.
Household budgets are already tight, and the labor market remains bruised from job cuts. Private companies — mostly small businesses — slashed 32,000 jobs in November, according to data released this week from payroll processing firm ADP.
Rate cuts don’t come with gift receipts. So if we’re getting one, we’re stuck with it — and hopefully it’s the right fit.
