Here’s what’s happening now with mortgage rates

In an effort to improve housing affordability, President Donald Trump posted on social media Thursday that he is instructing mortgage giants Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds.

“This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable,” he said in the Truth Social post.

Fannie Mae and Freddie, which are in government conservatorship, do not originate home loans. They buy loans from lenders, bundle them into mortgage-backed securities (MBS) and sell them to investors — thereby replenishing lender funds for new loans and keeping interest rates lower and more stable for homebuyers.

Purchasing more mortgage-backed bonds or securities does move mortgage rates lower. In the first two months of the Covid pandemic, as markets reeled, the Federal Reserve purchased $580 billion in agency MBS. It then continued buying more throughout the year. From March 2020 through June 2021, the Federal Reserve increased its agency MBS holdings from $1.4 trillion to $2.3 trillion, according to the Dallas Fed.

The Federal Reserve also lowered its own lending rate to zero. The combination brought the average rate on the 30-year fixed mortgage to record lows, hitting just 2.75% at the start of 2021, according to Mortgage News Daily. The current rate is 6.21%.

“How big a deal is $200 billion? This depends on a few factors, but the reaction in the MBS market is enough to tell you that it matters,” said Matthew Graham, chief operating office at Mortgage News Daily which tracks rates closely and is already seeing them fall just from the news of the announcement.

While it is still not known how quickly this would start and how long it will take, analysts are predicting where mortgage rates could end up; most put the drop somewhere between 25 and 50 basis points, some even lower.

“We believe that $200bn of MBS purchases could drive a ~10-25bps reduction in mortgage rates, potentially reducing the current 30-year headline mortgage rate to roughly 6.0% (current 6.21%). While still elevated relative to the average outstanding mortgage rate of 4.4% and the 3.25% levels as recently as Jan 2022, this decline may provide a boost to both new construction demand and existing home turnover,” analysts at UBS wrote.

Put simply, if rates were to drop even to 5.9%, for someone buying the median priced home — which is right around $425,000, according to the National Association of Realtors — using a 30-year fixed mortgage with a 20% down payment, the monthly payment would drop by $118. For some, that may not seem like a lot, but for first-time buyers on the edge of affordability, it could make a difference. They would still, however, need to save for the down payment, which is currently the biggest hurdle for most first-timers.

Homebuilder stocks rallied on the news, but they were already…