Mortgage rates fell this week as investors convinced themselves that the Federal Reserve might cut short-term interest rates when it meets in December.
The average rate on the 30-year fixed-rate mortgage fell 15 basis points to 6.08% APR in the week ending Nov. 26, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of a percentage point.
An empty plate where economic data should be
Sometimes mortgage rates move up or down on the basis of solid economic data. That wasn’t the case this week, because there wasn’t much economic data for investors to digest. Though the government has reopened, many economic reports remain delayed.
In the absence of hard economic info, the mortgage market operates on speculation. And during the week before Thanksgiving, the mortgage world feasted on quotes from Federal Reserve officials, garnished with a slice of wishful thinking.
A clash at the Fed
Our table was set with the release of minutes from the Fed’s most recent meeting in late October, when it cut the overnight federal funds rate by a quarter of a percentage point. But there was some dissent: One member of the rate-setting committee wanted to cut the rate by half a percentage point. Another member didn’t want to cut the rate at all.
When the committee discussed what the Fed should do at its next meeting, Dec. 9-10, things apparently got tense, like when your uncle bellows about politics at the Thanksgiving table. According to meeting minutes, the Fed members “expressed strongly differing views.” Most said they think the Fed should cut rates again, but not necessarily in December. These meeting minutes disappointed the mortgage market, which hungers for more rate cuts.
Dessert arrived on Nov. 21, when John Williams, president of the Federal Reserve Bank of New York, gave a speech in Chile. “I still see room for a further adjustment in the near term to the target range for the federal funds rate,” he said, indicating that he may favor a rate cut in December. That was enough to send mortgage rates downward.
Some folks are refinancing
The timing of this rate drop could have been better. After all, the holidays aren’t exactly prime time to buy a home. But some folks might take a break from the decorating and shopping and spatchcocking to refinance their mortgages.
“I think people are feeling a little more confident because they’re refinancing,” said Carolyn Morganbesser, assistant vice president of mortgage originations for Affinity Federal Credit Union in New Jersey. Some are refinancing what they owe to grab a lower rate, she said. Others are getting cash-out refinances, borrowing more than they currently owe and taking out the difference in cash.
These borrowers often use the cash to make home improvements. Morganbesser says some people are staying in their homes longer than they originally intended. “Now they’re going to put it in that chef’s kitchen, or now they’re going to redo the bathroom,” she says. “So they cash out their equity in a refi to get those funds.”
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