Federal Reserve Board Chair Janet Yellen speaks at a news conference back in June in Washington, D.C.
Federal Reserve Board Chair Janet Yellen speaks at a news conference back in June in Washington, D.C. - 
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Everybody is wondering if the Fed will raise rates at its meeting on Tuesday and Wednesday. That includes people looking to buy a new house. But do home buyers need to watch the Fed’s every move? 

I traveled to Rockville, Maryland to find out.

Niles Hancock, his wife, Mirah, and their 6-month-old son, Mateyas, live there in a two-bedroom condo. Mateyas is that classic bouncing baby boy you’ve heard of.  Or lived with. If you’re me.

Niles Hancock lives in Rockville, Maryland with his wife, Mirah, and son, Mateyas.
Niles Hancock lives in Rockville, Maryland with his wife, Mirah, and son, Mateyas. - 

The Hancock family needs more space. So they’re in the midst of selling their condo, and buying a townhouse.

Niles Hancock has started watching interest rates like a hawk. His assumption? If the Federal Reserve hikes interest rates, mortgage rates will rise, too.

“That’s me," he told me. "I’m that guy.”

Thing is? That’s not really how it works. For example, last December? When the Fed raised interest rates? Mortgage rates actually went down. Not what Hancock expected.

“And I go and I look and I’m like – well, this is what it was yesterday," he said, laughing. "I guess it hasn’t hit.”

So, what’s the deal?  If it’s not the Fed, what does determine the interest rate on your mortgage?

“Wall Street sets your mortgage rate,” said Morris Davis, who teaches real estate at Rutgers University. “The mortgage rate moves or aligns pretty closely with the 10-year Treasury.”

He’s talking about bonds.  Ten-year Treasury bonds. They’re long-term, stable investments. Just like your 30-year, fixed rate mortgage.  That’s why those mortgage rates follow the bond’s lead.  And what moves a 10-year Treasury bond? How much investors are willing to pay for them.

“It’s like supply and demand,” said Guy Cecala, publisher and CEO of Inside Mortgage Finance. “The more investors want to buy U.S. Treasuries, the lower rate the Treasury has to pay out.”

And so the bond rate goes down, and the mortgage rate goes down.

Back in Rockville, Niles Hancock had no idea mortgages rates were so complicated. He said it’s like peeling an onion.

“The more layers you peel off, you start crying," he said. "It gets complicated. How much do you really want to know? Well, how long can you keep peeling for.”

Hancock said he’s glad to know how the system works. But, he doesn’t want to peel that onion much more.

Follow Nancy Marshall-Genzer at @MarshallGenzer