When the Fed cut interest rates last month for the first time since March 2020there was a collective sigh of relief. The previous federal funds rate of 5.3% indicated a twenty-year high; It was implemented to curb rampant inflation, but it dramatically increased the cost of borrowing for consumers.
Economists and prospective homebuyers anticipated lower mortgage rates, especially as the Federal Reserve is expected to cut rates another 0.5% by the end of 2024 and then several times in 2025.
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While it typically takes a few months for mortgage rates to fall after a federal funds rate cut, experts did not anticipate they would rise. This time, however, Mortgage rates have risen steadily over the past four weeks. since the rate cut.
Some aggravating economic factors may be to blame for this fortuitous market behavior.
Why are mortgage rates rising?
30-year fixed-rate mortgages averaged 6.08% on September 26, the week following the Federal Reserve's announcement. According Freddie Mac Primary Mortgage Market SurveyThey have been rising each week until reaching 6.44% on October 17.
The effect on a $250,000 mortgage: The monthly principal and interest payment would increase from $1,505 a month to $1,570.
He 10-Year Treasury Yield – which greatly influences mortgage rates – has been rising in recent weeks, raising mortgage rates with it. The yield bottomed at 3.63% on September 16 and was at 4.1% on Friday.
The other main drivers of rising mortgage rates – inflation and unemployment – have produced unexpected results this month.
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September 2024 Employment Report: After several months of slow job growth, report says 254,000 jobs added to the economy. The unemployment rate fell from 4.2% to 4.1%. Job growth especially exceeded analyst expectations and also drove up mortgage rates: a strong labor market is a sign of a healthy economy, which can boost interest rates.
October CPI Update: September CPI data, released on October 10, was slightly higher than expected, showing unexpected variation. increase fromm 2.2% to 2.4%. Inflation drives up the prices of consumer goods and housing, including mortgages. Also reduces demand for mortgage-backed securitieswhich causes the value of those assets to fall, which drives up mortgage rates.
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How the 2024 presidential election may further impact rates
Experts predict that this fluctuation in mortgage rates will likely continue at least until the end of November.
In addition to market movements and economic indicators, economists predict that the upcoming presidential election results will affect mortgage ratesregardless of which candidate wins.
Related: Dave Ramsey explains how your mortgage is key to retiring early
If Kamala Harris wins, mortgage rates are expected to stabilize or even drop due to her homeownership assistance policy proposals.
By contrast, a Trump presidency would likely raise mortgage rates, largely due to his tax cut plan and proposed tariff increases. Both factors are likely to increase inflation, leading the Federal Reserve to keep interest rates high.
This means potential homebuyers may want to delay purchasing until 2025 if they want to secure the lowest mortgage possible.
However, housing inventory is increasing, which may lead to better prices. He Average monthly mortgage payment decreased to $2,529 in September – its lowest level since January.
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