Here's what should happen next to mortgage rates

It's been a bit more than a week since the Federal Reserve cut its key interest rate for the first time in two years.

And ... mortgage rates haven't changed much.

In fact, they've been rising. But only a little.

When the Fed cut its key Federal Funds Rate 0.5 percentage point to a range of 4.75% to 5% on Sept. 18, anyone involved in housing was as excited as could be.

The national rate on a 30-year mortgage had already made a decisive move, falling below 7%, after surging as high as 7.5% in April.

As of Sept. 27, a Friday, rates on 30-year fixed-rate loans nationally ranged from 6% to 6.2%, up slightly from a week earlier. A number of websites were showing offers occasionally at 5.7% or lower.

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Because rates are still mostly at 6% or higher, home sales have been stalled.

But a report from the Mortgage Bankers Association of America this week provided evidence that a little movement has started.

Mortgage applications for the week ending Sept. 20 were up 10% from a week earlier, the trade group reported. Applications to refinance existing home were up 20% from a week earlier and up 150% from a year earlier.

Applications to buy a home are a good indicator of buyer interest and, more important, confidence in buyers themselves and the economy.

Lindsey Nicholson/UCG/Universal Images Group via Getty Images

Here's how the numbers work

At 6.2%, the monthly principal and interest payment on a $250,000 loan would be $1,531 a month.
In April, with rates at 7.5%, the payment would have been $1,748. (The payment does NOT include property taxes, insurance or homeowners association fees.)

So, the rate picture is better. It should continue to improve if the Fed cuts the Federal Funds Rate again at its Nov. 6-7 meeting and again at its Dec. 17-18 meeting.

Not so much because the Fed is telling mortgage lenders to charge lower rates. Rather, bond traders will be reacting to the Fed's signals and pushing bond yields lower. Remember: If bond prices are rising, bond yields move lower, and that means lower mortgage rates.

Put another way: The bond market rules all. So, pay attention.

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Why rates aren't moving

So, why are bonds being a little sticky now?

It's a little early. It takes time for a Fed decision to work its way through the economy.
There is worry about commodity prices, especially oil. Crude prices are extremely sensitive to geopolitics, especially to the tensions in the Middle East. Late last week, there was fear Israel would invade Lebanon, and crude shot up. West Texas Intermediate, the benchmark U.S. crude, closed at $67.67 per 42-gallon barrel on Thursday, down $2.02 from Wednesday and $71 on Sept. 20.
The Nov. 5 elections are close enough both in terms of the calendar itself and the perception that the elections are likely to be close that many traders are wary about making big moves just now. The Federal Reserve's policy-making Federal Open Market Committee will meet for two days starting a day later.

Once the election is over — assuming there's a clear result — the talk is rates will start falling again, no matter who is elected.

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