No, the Federal Reserve does not control mortgage rates

There is widespread misunderstanding about what drives mortgage rates. Indeed, I read an article recenlty on the National Association of Realtors website which stated that mortgage rates had risen sharply following the increase in the Federal Reserve’s interest rate.

Not so.

As the table and chart demonstrate, the cost of a FRM increased by 3/4% before the Fed made its first move in March, and moved a further 1.5% while the Fed Funds rate increased by 0.5%. And the FRM has decreased by 0.8% during the latest increase in the FFR.

What does influence the FRM?
Mortgages are packaged and sold to investors who demand an extra yield over that which they can receive in the US Treasury security with the closest maturity to the expected life of the mortgage pool – and that is the 10-year Treasury Note (10T).

Over time the extra yield demanded by investors – the spread – has averaged in the 1.6-1.8% range. It tends to be higher in times of uncertainty or stress – such as the Great Recession or the early days of COVID before the Fed started helicoptering in cash by the trillion.

In the chart the correlation between FRM and 10T is clear. The spread may fluctuate but the two move in the same direction.

And read these recent articles:

Economic commentary
Federal Reserve tries to rewrite history
Has Inflation Peaked?
Have Mortgage Rates peaked?
Are we already in a Recession?
Federal Reserve in Fantasyland: Implications for Housing Market
How far Behind the Curve is the Federal Reserve?
Will the Federal Reserve show chutzpah today?
Why are Mortgage Rates so high?

How to protect your house from title fraud
Florida Lawmakers Pass Insurance, Condo Reforms
Florida Regulator: Insurers Can Offer Roof Deductibles
Expansion Plans for Fort Myers Airport
Guide to Buying and Selling in Southwest Florida

May Market Summaries
Sales Resemble Pre-Pandemic — But Not Pricing & Inventory
Naples May Market Summary
Bonita Springs May Market Summary
Sanibel May Market Summary
Fort Myers Beach May Market Summary
Estero May Market Summary
St James City May Market Summary
Estero May Market Summary

  • Andrew Oliver, M.B.E., M.B.A.
    Real Estate Advisor
    m: 617.834.8205
    800 Laurel Oak Drive, Suite 400, Naples, FL 34108
    Licensed in Massachusetts

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact me on 617.834.8205 or