If you are like most buyers, sellers and even some real estate agents, you get excited when the Federal Reserve cuts benchmark interest rates. After all, shouldn’t lower rates from the Fed mean lower interest rates for mortgages? It is understandable that so many people believe that a fed rate cut leads directly to lower mortgage rates. It is a common misconception. Media outlets fuel this assumption, highlighting potential benefits to home buyers and sellers.

What are rates based on?

So, what does a rate cut really mean for buyers and sellers? When the Fed cuts rates they are typically trying to stir the economy by making borrowing cheaper in the short term. Mortgage rates, don’t always move in lockstep. The Federal Reserve controls short-term interest rates. But the 30 year fixed rate mortgage rate follows long-term rates. The long term rates are primarily influenced by the bond market-specifically the yield on the 10 year U.S. Treasury Bond. Since mortgage lenders tend to set their rates based on what’s happening with these long-term bond yields this is the key thing to watch. But, even watching the 10 year U.S. Treasury Bond doesn’t give you a clear picture of what to expect regarding mortgage interest rates and where they are going. There is so much more that goes into whether interest rates go up or down. It is hard to predict even for a mortgage expert or economist.

How it affects you

Of course mortgage interest rates matter somewhat when you are deciding to buy or sell a home. The current interest rate will make a difference in your monthly payment and what you can afford. Remember, if you can afford the payment, whether you buy or sell a house should be based on if it makes sense for you personally. For example, if you need to sell a home because you are getting a divorce or because you just had a new baby, you should make the change in your housing because it is important to you personally. Interest rates, whether they go up or down this week, should not really matter.

Home Buyers

So what do the Fed’s interest rate changes mean for home buyers and sellers? It is important to understand that mortgage interest rates are influenced by complex factors. This includes, but is not limited to, the Federal Reserve. As a buyer you should stay informed about what is happening in the economy. You should work closely with your lender to get a feel for what mortgage rates likely will do and how that could affect you. Don’t want to time the market perfectly. There is no perfect. Lock your rates when the numbers work for you.

Home Sellers

As a home seller, it is easy to get caught up in the belief that the lowering of rates will mean that home buyers will be flocking to your home. Lower rates may mean more buyers in the market. The most important thing for you to focus on when selling your home is pricing your home competitively and making sure it looks its best.