Mortgage rates are going up again, which is bad news for people who want to buy a home. This is because the financial markets are analyzing new economic data that shows the U.S. economy is strong as well as the possible results of the upcoming presidential election, according to experts.
There was a sudden rise in rates. Just in October, the average 30-year fixed-rate mortgage went up by 72 basis points.
A daily poll by Mortgage News Daily found that the 30-year rate averaged 6.92% on October 23.
If someone buys a used home in the U.S. for the typical sale price of $404,500, that means they will have to pay a $2,700 mortgage payment every month.
The Federal Reserve has only a small effect on mortgage rates.
It may be hard to understand why mortgage rates are going up when the Federal Reserve just cut its average interest rate for the first time in four years and plans to do it again in the months to come.
But there is a simple reason for this: changes in the 30-year mortgage rate are not directly linked to the Fed’s rate cuts. They move instead because they want to know what the Fed will do next and in the next few to middle terms.
As an example, the 30-year rate dropped almost to 6% before the Federal Reserve cut its key interest rate by 50 basis points. When the rate dropped, a lot of people rushed to refinance their homes to lower their monthly payments.
It looks like the 30-year rate will go back up to the 7% range now that the financial markets don’t think the Fed will cut rates again at its meeting in early November.
The 30-year mortgage rate tends to move in the same way as the yield on the 10-year Treasury note, which is 4.220% TMUBMUSD10Y. And the 10-year has been going up, which has caused mortgage rates to go up too.
This is why mortgage rates are going up.
What makes the market think that the chances of a Fed rate cut are low?
Samir Dedhia, CEO of New Jersey-based One Real Mortgage, told MarketWatch that rates are going up because people are nervous about the upcoming presidential election and the way U.S. economic data looks.
“Traders are keeping a close eye on things because they think that a good report on the job market next week or the outcome of the election could make rates go even higher,” he said. The job report for October will likely come out on November 1 at 8:30 a.m. Eastern time.
Hannah Jones, a senior research economic expert at Realtor.com, told MarketWatch that rates have gone up over the last few weeks because job growth has been better than expected. It also “dashed some of the market’s hope of easy progress toward lower inflation,” she said.
(Realtor.com is run by Move Inc., a division of News Corp. The company that owns MarketWatch is Dow Jones, which is itself a part of News Corp.
When will rates on mortgages go down?
It is less possible that the Fed will lower interest rates when the U.S. economy is doing well. Someone who works for the Fed recently said that there is a chance that if they cut rates too fast, it could cause inflation to rise again.
Dedhia said, “Given the current state of uncertainty, it wouldn’t be surprising to see mortgage rates continue to rise between now and Election Day.”
Still, today’s rates are better for people who want to buy a house than they were a year ago, when the average 30-year fixed-rate mortgage went up to about 8%. However, they’re still a big jump from the buyer-friendly 2% rates that were common during the pandemic.
But people who are patient might get what they want in the end. Jones said that mortgage rates are still likely to go down over the next few months and into next year. But she also said, “Recent volatility may last as the market adjusts to each new piece of economic data.”
Fannie Mae FNMA 3.95%, which backs one in four U.S. home mortgages, said in its most recent report that it thinks the 30-year mortgage rate will drop below 6% by the beginning of 2025 and to 5.6% by the end of that year.
