Mortgage rates are climbing again despite the Federal Reserve cutting interest rates at last month’s policy meeting.
This represented the sharpest one-week increase since April.
Though mortgage rates suddenly increased, they are down from 7.57 percent a year ago.
Fifteen-year mortgage rates also climbed, to 5.41 percent, up from 5.25 percent last week. Likewise, they are down by 1.48 percent from the same time a year ago.
“We should remember that the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market.”
After the Fed slashed interest rates for the first time in more than four years and signaled that more rate cuts were coming, it had been widely anticipated that mortgage rates would start falling.
Mortgage rates closely track the 10-year Treasury yield, and the benchmark government bond has been surging even as the central bank kicked off its easing cycle.
For the first time since August, the benchmark 10-year yield firmed above 4 percent, climbing by nearly 50 basis points since the Fed announced a jumbo half-point rate cut.
The stronger-than-expected September jobs report fueled perceptions that the Fed would not aggressively lower interest rates, causing bond markets to reset their rate-cut expectations.
“Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course,” Fed Chair Jerome Powell said in a prepared speech at a National Association for Business Economics event last month.
As a result, the 30-year mortgage rate is back to where it was before the Fed cut the policy rate.
This could weigh on demand in the coming weeks as higher rates contribute to enormous price pressures already affecting prospective homebuyers.
Examining the US Housing Market
But trying to “time mortgage rates” might be “a fool’s errand,” especially in today’s economic climate, Bright MLS chief economist Lisa Sturtevant said in an analysis.“Prospective homebuyers should find more inventory and should have more leverage in the coming months, which could make it a good time to buy,” Sturtevant said.
“The decision about when to buy a home, however, will depend not only on external economic conditions but also on personal financial and family situations.”
In recent weeks, the numbers have been mixed.
“Homes spent eight days more on the market compared to this time last year,” she said, which shows that “buyers have been holding off, waiting for more affordable housing conditions.”
Median listing prices have fallen for 19 consecutive weeks as “sellers continue to adjust prices to encourage home shopper attention.”
Still, home prices continue to be much higher than before the pandemic.
Last month, the shelter index rose by 0.2 percent, down from the 0.5 percent increase in August. It also decelerated to 4.9 percent year-over-year, from 5.2 percent in the previous month.
The annual inflation rate eased to 2.4 percent, the lowest level in about three years.
Core inflation, which omits the volatile energy and food components, unexpectedly ticked up to 3.3 percent.
Both readings came in higher than economists’ projections.
Whether the upside surprise to inflation will confirm the Fed’s verdict to be conservative in lowering interest rates remains to be seen.
“It is still likely that the Fed will go ahead and cut by 25 bps next month and—if nothing in the labor market or inflation readings materially changes by the end of the year—another 25 bps in December,” Chris Zacarelli, chief investment officer at Independent Advisor Alliance, said in an email to The Epoch Times.
The next two-day Fed meeting will take place on Nov. 6 and 7.
