Why Waiting for the Fed to Cut Rates Could Cost You a Home
Every time the Federal Reserve meets, the question floods in: Should I wait for rates to drop before buying? It's a reasonable instinct, but it's based on a misunderstanding of how mortgage rates actually work, and acting on it could leave you worse off.
The Fed Doesn't Control Your Mortgage Rate
Mortgage rates are tied to the 10-year Treasury bond, not the Federal Reserve's benchmark rate. The Treasury market is driven by inflation expectations, institutional investors, and global sovereign wealth funds – none of which take their cues from the Fed. In recent years, there have been instances where the Fed cut its rate and mortgage rates rose anyway. The two simply don't move in lockstep.
So when you read a headline saying the Fed is cutting rates and assume your mortgage payment is about to get cheaper, that assumption may not hold.
The Real Risk of Waiting
If rates do drop, the buyers who have been sitting on the sidelines waiting for that moment will move at the same time. In a market like Madison, where well-priced homes can receive a dozen or more offers in a week, a rate cut means more competition for the same supply of homes.
The math on a small rate drop is also less compelling than it appears. The difference between a 6.25% and a 5.75% mortgage on a typical purchase works out to roughly $100–$200 per month. That's a real saving, but not one worth losing the right house over.
"Marry the House, Date the Rate"
You can always refinance. If you find the right home and rates drop later, a refinance captures the lower payment. If rates move the other way, you'll be glad you locked in when you did. What you can't do is go back and make an offer on a house that has already sold.
If the home works for your life and your budget, the timing question mostly answers itself.
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