The Fed Just Reversed Mortgage Rates

Quick Overview

The Fed's recent 0.25% rate cut on October 29th, 2024, does not immediately translate to lower mortgage rates, which are primarily influenced by the 10-year US Treasury yield driven by bond investors' fears of recession and inflation, leading to a current market environment that favors investors who can strategically underwrite deals assuming rates will not drop significantly, focusing on strong cash flow and asset value appreciation potential rather than relying on future rate decreases for profitability.

Key Points: The Federal Reserve implemented a 0.25% Federal Funds Rate cut on Wednesday, October 29th, 2024. Mortgage rates are not directly moving down in lockstep with the Fed Funds Rate cut; they are influenced by the 10-year US Treasury yield, which is driven by bond investor concerns over recession and inflation. The correlation between Fed rates and mortgage rates has weakened over the last few years, meaning rate cuts do not guarantee lower mortgage rates. Investors should focus on underwriting deals conservatively, assuming rates will remain high or potentially rise over the next 2-5 years, to protect against downside risk. The current environment favors assets that offer good cash flow and owner-occupancy potential, as speculative buying based on expected rate drops is discouraged. Investors must look for properties in affordable pockets where they can actively add value (e.g., zoning, adding a second unit) to create returns, rather than just waiting for market conditions to improve. The speaker predicts that for the rest of 2024, mortgage rates will likely remain relatively flat or slightly higher than current levels, or at least not drop significantly.

Context: The video features Dave Meyer, Head of Real Estate Investing at BiggerPockets and author, discussing the recent decision by the Federal Reserve to cut the Federal Funds Rate by 0.25%. He contrasts this move with the actual behavior of mortgage rates and provides strategic advice for real estate investors on how to underwrite and invest successfully in the current high-rate, uncertain economic environment characterized by conflicting fears of inflation and recession.