As most people expected, the Federal Reserve cut interest rates in September, but that doesn’t necessarily mean mortgage rates are also falling, as the two rates aren’t inextricably linked. That became apparent in 2003, when the Federal Reserve adjusted rates thirteen times in a six-month period, down eight times and up five times, with no noticeable effect on mortgage rates.

However, since consumers generally don’t understand that, they tend to be suspicious of lenders when mortgage rates don’t go down after a Federal Reserve rate cut. The simple fact is that mortgage rates rise and fall based on how investors feel about long-term inflation. If investors believe inflation will rise, mortgage rates rise in response.

According to Bankrate.com, the average fixed rate on a 30-year mortgage in mid-July was 6.82%. In mid-September, the rate has fallen to 6.32%. It turns out that those numbers exactly reflect the half-point cut just implemented by the Fed, but it’s still just a coincidence, because interest rates are really reacting to natural forces in the US market. When the Federal Reserve cuts rates, it is actually reacting to declining consumer interest rates within the economy, and not the other way around as most people believe.

The Fed’s rate will also do nothing concrete to stop the decline in home prices in most areas of the country. Most experts predict that home prices will continue to fall, fewer new homes will be built, and sales of existing homes will remain relatively slow for the foreseeable future.

The people in the toughest situation during the current downturn are homeowners who bought their homes with little down payment and took out an adjustable-rate mortgage. They have recently been experiencing a double whammy, seeing their interest rate go up while their home values ​​have gone down. That means their payments have increased significantly, but they can’t refinance their homes to make their payments more manageable.

However, the real estate news is not all bad. As mortgage rates remain relatively low and home prices have been falling, more and more first-time buyers are in a position to purchase their first homes. That number includes people who have been renting while waiting for such a price correction in the housing market. For them, the next few months may be the best time in years for them to finally get out of the rental cycle and have their own homes, which they can make pretty!