How Quantitative Easing Really Drove Mortgage Rates to Historic Lows

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Preston Hamilton explains how quantitative easing impacts mortgage rates

Does the Fed really control mortgage rates? Let’s talk about the role of QE.

  • What is Quantitative Easing and How Does It Affect Mortgage Rates?

    It’s one of the biggest misconceptions in real estate: that mortgage rates are controlled by the Federal Reserve. But if you dig into the data—and history—you’ll find the real rate driver isn’t the Fed Funds rate. It’s quantitative easing.  Let’s break down what quantitative easing is and how it directly affects mortgage rates.

     

    What Is Quantitative Easing (QE)?

    Quantitative easing is when the Federal Reserve buys up large quantities of long-term financial assets—like U.S. Treasuries and mortgage-backed securities (MBS)—in the open market.

    Why do they do it? To inject liquidity into the financial system, stimulate borrowing, and drive down long-term interest rates. More demand for mortgage bonds = lower yields = lower mortgage rates.

    This is different from traditional monetary policy. Instead of just adjusting the Fed Funds rate (which affects short-term lending between banks), QE targets long-term lending and investment behavior.

    When QE Changed Everything: The COVID Example

    Remember 2020? Mortgage rates dipped into the 2s. Was that because of a Fed rate cut? Partially.

    But the real driver was QE. During the pandemic, the Fed began buying massive amounts of MBS—up to $40 billion per month.

    This flood of artificial demand drove mortgage rates to record lows. Buyers flooded the market. Refinances boomed. It was a rate environment unlike anything we’ve seen.

    Why QE Isn’t Coming Back Anytime Soon

    Here’s the kicker: the Fed isn’t buying mortgage bonds anymore. In fact, they’ve been doing the opposite—quantitative tightening (QT), allowing MBS to roll off their balance sheet.

    So even if the Fed cuts rates, we’re unlikely to see mortgage rates fall to pandemic-era levels.

    QE works because of scale and commitment. Without it, mortgage rates are left to the whims of bond markets, inflation data, and investor sentiment. That’s why you can’t just point to Fed announcements and expect rates to follow.

    For Borrowers and Agents: The Real Takeaway

    Don’t wait for QE 2.0—it’s not coming this year.

    The best strategy today is to understand what actually moves mortgage rates:

    • Inflation trends
    • Treasury yields and MBS spreads
    • Global investor demand for U.S. debt
    • Overall economic sentiment and data surprises

    If you’re watching Fed meetings but ignoring bond markets, you’re only seeing half the picture.

    And if you’re a buyer waiting for 2.75% rates to come back… well, you might want to get comfortable.

    Want to know more? I post daily mortgage insights on Instagram, LinkedIn, and YouTube. Follow for straight talk and zero fluff.
    Learn more here Federal Reserve QE Explanation


     📌 Coming up next: A breakdown of Quantitative Tightening and why it might keep mortgage rates from falling.

— Preston Hamilton, Mortgage Broker
Always Learning. Always Connecting. Always Growing.

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Why Fed rate cuts don’t always mean lower mortgage rates.

Why Fed rate cuts don’t always lower mortgage rates – mortgage advice by Preston Hamilton

Why Fed Rate Cuts Don’t Always Mean Lower Mortgage Rates

It’s a common misunderstanding that Fed rate cuts and mortgage rates always move together—but the data tells a different story.

“Once the Fed cuts rates, mortgage rates will drop.”
Not exactly.

Here’s what really happens—and why this misunderstanding can cost clients (and deals) if you’re not framing it correctly.

🧠 The Fed Doesn’t Set Mortgage Rates

The Federal Reserve controls the Federal Funds Rate, which is the overnight lending rate between banks.
This most directly affects things like credit cards and auto loans.

Mortgage rates, on the other hand, are driven by longer-term bond markets—specifically the 10-Year Treasury yield and mortgage-backed securities (MBS).

The connection between the Fed and mortgage rates?
👉 Loosely correlated.
👉 Not direct.

🕵️‍♂️ So… What Happens When the Fed Cuts Rates?

Sometimes mortgage rates go down.
Sometimes they don’t.
Sometimes… they go up.

🧾 Case in Point: Late 2023

Let’s go back to September 2023:

  • Conventional mortgage rates: Low 6s

  • Government-backed loans: High 5s

Then the Fed cut:

  • 0.50% in September

  • 0.25% in November

  • 0.25% in December
    ➡ A full 1% drop in the Federal Funds Rate.

And yet… mortgage rates rose.

💡 Why? It’s About Perception—Not Just Policy

Anticipated Fed cuts only help if they ease inflation fears.

But if markets interpret them as a sign of economic weakness, it creates uncertainty:

  • Bond volatility increases

  • MBS yields rise

  • Mortgage rates climb

📉 What Actually Dropped Rates in 2020?

It wasn’t just the Fed’s cuts.

It was quantitative easing—the Fed buying massive amounts of MBS, which created artificial demand and drove rates to historic lows.

We’re not doing that now.

🧭The Real Lesson for Realtors and Borrowers

Don’t tie your clients’ expectations to Fed meetings.

Instead, help them understand:

  • 📈 What the bond market is doing

  • 🔥 What inflation data looks like

  • 💬 How investor sentiment is shifting

Because that’s where mortgage rates are born.

📎 Source

Learn more at the Federal Reserve’s official site.

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