Why have loan charges long past up for the reason that Fed charge minimize?

The Federal Reserve cut rates on Wednesday and mortgage rates went up! What happened? The answer lies in the bond market.

The 10-year yield and 30-year mortgage rates have been in a slow dance since 1971 and trended together. The bond market isn’t old and slow like the Fed — it moves very quickly, and for months it has been sending the 10-year yield (and mortgage rates) lower in anticipation of a series of Fed rate cuts, not just one or two.

As I’ve said for several months on the HousingWire Daily podcast, the key to understanding mortgage rates is to focus on the labor and economic data—not rate cuts. The 10-year got as low as 3.60% yesterday, but then housing starts data came out. Housing starts beat estimates, and the single-family permits data shows that they are growing again. The 10-year yield was already higher before the Fed announcement,

The growth of housing permits is a good sign for economic expansion, and falling mortgage rates since June have helped push this data line. We would not have this conversation if mortgage rates were still in the range of 7.50%- 8% today. The bond market got ahead of the Fed, pushing bond yields and mortgage rates lower—which has already made a difference.

So what now? Today’s jobless claims data came in better than expected, sending yields higher again, which looks perfectly normal. The bond market is so far ahead of the Fed that it can sit and watch to see how the economic data trends. If housing starts, industrial production, and jobless claims were worse than expected, we would have a different discussion today. However, that’s not the case — the economic data, even retail sales this week, came in as a beat.

So, if you’re confused about why rates went up, remember that the bond market gets ahead of the Fed. And listen to the podcast — we’ve been discussing this for months. The labor market has been softer with the data’s internals since the end of 2023, and the Fed is only now worried about a risk to labor. This means they need to play catch up to the market pricing. The 10-year yield is currently at 3.74%, up from yesterday’s lows and slightly higher from the close. For mortgage rates to go lower, we need to see three things:

1. Mortgage spreads getting better
2. Economic and labor data getting softer
3. The Fed getting more dovish with their statements, showing a willingness to do more to help the economy stay out of recession

Until then, the last 24 hours make a lot of sense to me, given the economic data and where the bond market was trading before the housing starts data came out.