A common belief persists that the Federal Reserve cutting the federal funds rate automatically brings mortgage rates down. That assumption is rooted in a simple model: banks borrow cheaply from the Fed and then pass savings on to mortgage borrowers. In practice the mortgage market has evolved into something much more complex.
Mortgage rates are driven primarily by demand and supply for mortgage-backed securities and by Treasury yields, not directly by the Fed funds rate. Even if the Fed trims short-term rates, long-term borrowing costs can remain elevated if investors demand higher yields on mortgage-backed securities or if Treasury yields stay high.
Banks rarely hold 30-year mortgages on their balance sheets for the full term. Instead they package loans into mortgage-backed securities and sell them to investors. The yield investors demand on those securities sets a practical floor for the mortgage rates lenders offer.
If investors will only buy mortgage-backed securities at a 6 percent yield, lenders cannot sensibly offer new borrowers 4 percent mortgages and then sell those loans at a loss. Strong investor demand lowers mortgage yields and translates into cheaper mortgages. Weak demand pushes yields and mortgage rates higher.
When the pandemic disrupted markets in 2020, private demand for mortgage-backed securities evaporated. To prevent a repeat of the 2008 collapse, the Fed stepped in and became the largest buyer of mortgage-backed securities, deploying roughly $1.3 trillion. That action pushed MBS yields down to historically low levels and mortgage rates briefly fell into the 2 to 3 percent range.
That intervention worked in the short term but had consequences. By creating money to buy securities, the Fed expanded liquidity and helped push house prices higher. The supply of houses did not increase, so low financing costs combined with abundant liquidity to lift prices—often well beyond wage growth and affordability.
Expectations for 2026 center on a new round of quantitative easing. Officials are likely to buy short-term U.S. Treasuries—reports point to about $40 billion a month as a target to keep Treasury yields from spiking. That will add liquidity to markets and, in turn, place upward pressure on asset prices, including housing.
Buying treasuries stabilizes Treasury yields but does not directly lower mortgage-backed security yields the way Fed purchases of MBS would. Mortgage rates will stay elevated unless either investors accept lower MBS yields or the Fed again becomes an MBS buyer. If the Fed buys Treasuries only, the result is more money in the system and higher house prices while mortgage rates remain relatively high.
The U.S. housing shortage is structural: zoning restrictions, local opposition to density, and slow new construction prevent supply from catching up to demand. Printing money or adding liquidity does not create more houses. Quantitative easing that expands the money supply without addressing supply constraints will likely lead to higher prices rather than improved affordability.
Given the likely combination of persistent mortgage rates and upward pressure on home prices, Utah residents should approach decisions with clarity and multiple strategies.
For local context on how interest rates and affordability intersect with the St. George and broader Utah markets, see a focused explanation at How Interest Rates Affect the St. George Real Estate Market. For strategies and mortgage-rate planning tailored to Utah buyers, consult Navigating Utah Real Estate: Strategies for Mortgage Rates.
General information on local listings and services is available at Best Utah Real Estate.
Investors should track three indicators closely:
Should a buyer wait for mortgage rates to fall before buying?
Waiting for lower rates can backfire. Policy actions that lower rates in the short term often increase liquidity and push home prices higher. Buyers should weigh current rates against price trends and personal circumstances instead of expecting a clear market reversal.
If the Fed cuts the federal funds rate, will mortgage rates follow?
Not necessarily. Mortgage rates depend largely on MBS yields and Treasury yields. Short-term Fed rate cuts can affect market sentiment but do not guarantee lower long-term mortgage rates unless investor demand for mortgage-backed securities increases.
Will house prices rise in 2026?
There is a risk that prices will rise if quantitative easing returns, even if the Fed buys Treasuries rather than MBS. Increased liquidity combined with a persistent housing shortage tends to lift prices over time.
What can Utah buyers do if they cannot afford a home right now?
Options include saving for a larger down payment, expanding the search area, considering condos or new-construction starter homes, using local first-time buyer programs, or investing in the stock market to grow capital until conditions improve.
Where can local buyers learn more about mortgage readiness?
Trusted local guides and market reports help. For Utah-focused advice, resources such as the Best Utah Real Estate site and its market reports offer practical guidance on timing, programs, and local trends.
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