With the Fed rate cuts, why are we seeing higher mortgage rates?

With the recent Fed action to cut rates again, we could be sure to see a drop in mortgage rates, right? Wrong. In reality, 30 year fixed rates are higher than they have been in a while.

The reason for this is the Fed's rate cut is on the short-term fed funds rate, which determines what banks charge each other for overnight loans. Long-term mortgage rates are mostly tied to the 10-year Treasury yield, which is determined by bond traders worldwide. Inflation also drives long-term fixed rates.

Typically, mortgage rates are about 2 percentage points higher than the yield on the 10-year Treasury, which currently stands at 3.29%. But with the housing market in such a mess right now, the rates are even higher. Lenders are more concerned than ever that borrowers will not be able to pay back loans. Until banks are willing to lend again, we will continue to see the higher rates.