Hey there, Blake here. 

My son keeps asking me if he should wait for rates to drop before buying his first house. 

Smart kid – but he's making the same mistake everyone else is making right now.

Here's what nobody's telling you about rate cuts and mortgage rates: they don't move together like most people think.

Want proof? 

Let me walk you through exactly what happened last year.

The Fed Cut Rates 1% – Mortgage Rates Went UP 1.1%

September 18th, 2024: Fed cuts rates 50 basis points. Ten-year yields? They were sitting at 3.6%.

Fast forward one month – yields jumped to 4.0%. That's UP, not down.

November 7th: Another Fed cut. Yields dropped a measly 0.1% from 4.4% to 4.3%.

December 18th: Third cut of the year. Here's where it gets really interesting – yields shot from 3.7% all the way to 4.8%.

Do the math with me. 

The Fed cut short-term rates 1% over three months. Meanwhile, the actual cost of borrowing – what determines your mortgage rate – went UP 1.1%.

Why Your Mortgage Rate Isn't What You Think It Is

I spent five years as a commercial lender working directly with Bank of the West, Zion's, and Morgan Stanley as a conduit lender. Here's the inside baseball most people never see.

Your mortgage rate isn't the Fed rate plus some margin. It's the 10-year Treasury yield plus the bank's profit spread.

During peak competition, I've seen that spread drop to 1.5%. When banks are getting squeezed and loan volume is down? They'll pad that number all the way to 3%.

The Market Drives This, Not the Fed

Here's what's really happening: The Fed controls short-term rates – your 30-day money. 

But mortgages are priced off 7-year and 10-year bond yields, and those are driven by market demand for bonds.

When the market thinks inflation is coming back, bond demand weakens. 

When bond demand weakens, yields go up. When yields go up, your mortgage rate goes up – regardless of what the Fed does with short-term rates.

We've been running an inverted yield curve where 30-day rates were higher than 10-year rates. 

That's not normal, and it doesn't incentivize borrowing or growth. Until we get a normalized curve where long-term borrowing costs more than short-term, this disconnect will continue.

What This Means for Your House-Buying Decision

My son's question isn't really about timing rate cuts. 

It's about understanding that mortgage rates are driven by bond market sentiment, not Fed policy.

If you think we're headed into stagflation – slow growth with persistent inflation – bond demand stays weak. 

Weak bond demand means higher yields. Higher yields mean higher mortgage rates, even with Fed cuts.

The housing market isn't showing increased demand despite rate cut expectations. 

Look at homebuilder stocks – they're selling off because they're sitting on too much inventory. That tells you everything about real demand.

The Real Numbers You Need to Track

Forget watching Fed announcements. Track TNX – the 10-year Treasury yield. 

Take that number, add 2% to 2.5%, and that's your realistic mortgage rate expectation.

Today's 10-year yield of 4.03% plus a 2.25% average spread puts you at 6.28%. That's where the market is pricing mortgages, not some fantasy rate based on Fed cuts.

Bottom Line for My Son (and You)

Don't time your house purchase around Fed rate cuts. They're not moving mortgage rates the way you think they are.

If you can afford the payment at current rates and you've found the right house, buy it. 

If you're stretching to afford it hoping rates will drop significantly, you're betting against market forces that have been moving in the opposite direction.

Take care,

Blake Young

P.S. I’ll be LIVE this Wednesday to talk about what rate cuts mean to the market, and how to position for them ahead of Q4. 

RSVP HERE