Making Sense of the Mortgage Rate Roller Coaster

Our clients are asking, what’s the deal with interest rates?

“The Fed cut the rate, but I saw mortgage rates tick UP instead of down. Can you explain why that is?”

Why Are Mortgage Rates Rising Even as the Fed Cuts Rates? 

If you’re watching the news right now, you’ve probably noticed something that feels completely backward:

The Federal Reserve is cutting rates… and mortgage rates are trending upward even as the U.S. economy reopens following the government shutdown.

This moment has everyone scratching their heads, especially here in Orange County, where affordability is already tight and even a small rate shift can change buying power by thousands of dollars.

So, what’s the deal?

The Fed Doesn’t Control Mortgage Rates

Even though headlines make it sound like the Fed “sets the rate,” the reality is The Fed controls short-term interest rates. Mortgage rates follow long-term bond yields.

These are two different worlds.

• The federal funds rate affects things like HELOCs, credit cards, and auto loans.

• Mortgage rates are tied to the 10-year Treasury bond yield, which moves based on investor expectations about the future economy — not what the Fed does today.

When the Fed cuts rates, it does not automatically pull mortgage rates down.

Why Mortgage Rates Can Rise When the Fed Cuts Rates

When the Fed cuts rates, it sometimes signals that the economy is stronger and inflation may rise, which in turn pushes mortgage rates up.

This happens because:

1. Investors expect more inflation.

Higher inflation erodes future returns, so investors demand higher yields.

2. A stronger-than-expected economy makes “safe” bonds less appealing.

Money flows out of bonds and into riskier investments, raising bond yields (and mortgage rates).

3. The market thinks the Fed may have acted too late or too softly.

If investors worry inflation isn’t fully under control, they price in higher long-term rates.

Mortgage rates react to the market’s future expectations, not the Fed’s present decision.

What This Means for Orange County Buyers Right Now

This is a moment to stay ready because the entire lending market could shift rapidly as up-to-date economic data comes in as the government reopens. 

For buyers:

• Don’t wait for the Fed. Watch the 10-year Treasury yield.

• A small drop in rates can boost your buying power significantly.

• Have your pre-approval updated so you can act when opportunity hits.

For sellers:

• Buyer demand in OC is softer but still strong at the right price.

• Small rate dips create bursts of activity. Be positioned to take advantage.

• Turnkey homes in desirable neighborhoods still move quickly

The Big Picture

The Fed is cutting rates.

Mortgage rates are rising.

Economic reports are pouring in.

The market is recalibrating in real time.

This is a moment of transition and uncertainty  but also an opportunity for those who stay informed and prepared.

At Heritage Coast, we help clients interpret the noise so they can make confident, strategic decisions in a market that doesn’t always make sense at first glance.

If you’d like help understanding what today’s rates mean for your next move in Orange County — whether buying, selling, or accessing equity — we’re here to walk you through it. Reach out to hello@heritagecoasthomes.com or DM us @HeritageCoastHomes on Instagram or Facebook