First and foremost, the Federal Reserve lowered the federal funds rate by 25-basis points to a range of 3.75–4.00 percent, while also announcing the end of balance sheet runoff (“Quantitative Tightening”) as of December 1. However, despite the Fed rate cut, mortgage rates did not fully follow suit, as the Freddie Mac 30-year and 15-year averages fell only slightly to 6.17 percent and 5.41 percent, respectively. Many borrowers expressed frustration, expecting lower mortgage rates in response to the Fed’s move, but industry professionals reiterated that overnight rates do not directly determine long-term mortgage pricing.
Markets were further influenced by optimism following President Trump’s meeting with China’s Xi Jinping, which resulted in a limited trade deal that eased certain tariffs and restored some agricultural exports. Treasury yields have risen as risk appetite improves, but stabilize when equities weaken and investors seek safe havens amid the ongoing government shutdown, which has delayed several key economic reports, including GDP, PCE, and jobless claims. Meanwhile, consumer confidence declined for the third straight month, underscoring persistent economic anxiety tied to inflation and slowing job growth.
Within the mortgage and housing sector, Freddie Mac’s Primary Mortgage Market Survey showed rates reaching new year-to-date lows, though the drop was marginal. Freddie Mac also reported third-quarter net income of $2.8 billion, down 11 percent year-over-year due to a larger credit reserve build, while Redwood Trust achieved record loan production of $6.8 billion and its strongest mortgage banking revenues since 2021. The National Association of Realtors’ data showed that pending home sales were unchanged month-over-month but only slightly lower year-over-year, indicating modest resilience in housing demand despite higher borrowing costs.
The Fed’s reinvestment strategy also drew attention, as it announced that funds from maturing mortgage-backed securities (MBS) and early payoffs will now be redirected into U.S. Treasuries instead of new MBS purchases. This shift aims to reduce the Fed’s exposure to mortgage assets and stabilize its balance sheet, but it also suggests less direct support for the mortgage market. Analysts noted that this reinvestment approach could limit downward pressure on mortgage rates, keeping yields “rangebound” despite softer economic conditions.
Looking ahead, the industry remains on edge as political and policy uncertainty intensifies. With the 2026 midterm elections approaching, changes in congressional control could influence housing and financial regulation. For now, lenders, brokers, and investors are navigating a delicate environment where rates, inflation, and consumer sentiment remain misaligned. The consensus across the industry is clear: while monetary policy is becoming more accommodative, mortgage professionals must focus on education and communication, helping borrowers understand the nuanced relationship between Fed actions, market forces, and long-term mortgage pricing.