“It's crazy right now,” Arizona homebuyers are hoping for some relief from Fed rate cuts

PHOENIX (AZFamily) — The Federal Reserve cut interest rates on Thursday for the second time in the past three months. But many Arizona homebuyers are wondering how soon they will see relief in mortgage payments.

Now that inflation has fallen, the Fed is slowly bringing back the policy rate from four-decade highs.

Mortgage rates generally fall when interest rates are lowered. But the cost of a new home loan is rising, which is confusing and frustrating for potential homebuyers.

Economic expert John Wake says interest rates are just one factor lenders consider when setting mortgage rates. A 30-year fixed rate is still lower than this time last year, but still too high for prospective buyers.

“When they cut rates, it usually means mortgage rates go down,” Wake says. “It’s crazy now.”

He says that while many were hoping mortgage rates would fall along with interest rates, there’s a reason this hasn’t happened: lenders had anticipated this. “A lot of people expected they were going to lower rates, and when they did, they already included that in the rates so they didn’t drop that much,” Wake said.

This is the second interest rate cut in the past three months. The interest rate now ranges from 4.5% to 4.75%. Meanwhile, mortgage rates are at 6.8%, up from 6.1% in September. “Yet mortgage rates are currently a whole percentage lower than a year ago. So they are not as bad as they used to be.” said Wakker.

Wake says lenders use other factors to calculate mortgage rates, such as unemployment and inflation, making it complex and nuanced. In fact, he believes there is only one thing that guarantees that mortgage rates will fall: “If you go into a recession, mortgage rates will fall. You may not have a job, but mortgage rates are still going down. The economy is quite good. People kept thinking we were going into a recession, and that would be good for home prices and rates, but that’s not what happened.”

But what do mortgage rates mean for the housing market? “The market is terrible right now for first-time homebuyers,” Wake said.

And he says it’s tough for sellers. “If your mortgage interest rate is three percent or less for the house you have now and six percent for the house you want, that’s a huge difference in monthly payments,” Wake said.

However, Wake says the Valley’s housing situation is unique because more people are moving here than in other parts of the country, keeping prices high and the market strong.

As for combating mortgage rates, he says you can buy and refinance, or consider expanding your current home if you need more space.

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