The 30-year mortgage rate in the United States has risen for four consecutive weeks, approaching 7% at one point. Analysts suggest that mortgage rates, which are not directly linked to interest rate cuts, may even anticipate the direction of rate cuts. Prior to the Federal Reserve's 50 basis point rate cut, mortgage rates had fallen to around 6%. The trend of rising mortgage rates is closely aligned with the recent surge in U.S. bond yields. Furthermore, there is a pessimistic expectation for a rate cut by the Federal Reserve next month, which may keep mortgage rates at elevated levels
After the Federal Reserve cut interest rates by 50 basis points in September, many residents expected mortgage rates to follow suit, but instead, mortgage rates rose.
This week, the average interest rate for a 30-year mortgage in the United States increased from 6.44% last week to 6.54%, reaching the highest level in nearly three months and rising for the fourth consecutive week. According to data from Mortgage News Daily, on October 23, the above-mentioned loan rate even climbed to 6.92%, approaching the high of 7%.
The average interest rate for a 15-year mortgage in the United States also rose this week, from 5.63% last week to 5.71%. The increase in mortgage rates will lead to borrowers incurring hundreds of dollars in additional costs each month.
Why are mortgage rates running counter to the interest rate cuts?
Mortgage rates are not directly linked to interest rate cuts, usually moving in line with the 10-year U.S. Treasury yield
On October 24, Marketwatch analyzed that the reason is simple, the fluctuation of 30-year mortgage rates is not directly linked to the Federal Reserve's interest rate cuts. Instead, they anticipate the Fed's next move and future short- to medium-term trends.
For example, before the Federal Reserve cut interest rates by 50 basis points on September 19, 30-year mortgage rates had dropped to nearly 6%. This decline triggered a surge in refinancing activities, with American homeowners rushing to seize the opportunity to reduce their monthly payments.
Now, the financial markets are pessimistic about the Fed cutting interest rates again at the November meeting, causing 30-year rates to rise back to around 7%.
Another phenomenon is that in recent weeks, U.S. mortgage rates have moved in line with the 10-year U.S. Treasury yield.
In recent times, multiple economic data points in the U.S. have been robust, leading to an increase in U.S. Treasury yields, with the 10-year U.S. Treasury yield reaching 4.2% at one point. In the days before the Fed cut interest rates, the 10-year U.S. Treasury yield was around 3.6%. The rise in Treasury yields has driven mortgage rates higher.
Strong economic performance pushes up mortgage rates, dampening the prospect of interest rate cuts
Sam Khater, Chief Economist at Freddie Mac, stated that the strong performance of the U.S. economy has driven mortgage rates higher this week.
Samir Dedhia, an analyst at Realtor.com, also mentioned that the recent increase in mortgage rates is due to stronger-than-expected employment data, which "shattered market hopes for easy inflation." She added:
"It's not surprising to see mortgage rates continue to rise from now until the U.S. election date."
The stronger the U.S. economy, the less likely the Fed is to cut interest rates. Federal Reserve Governor Waller recently stated that if the Fed cuts rates too quickly, it could reignite inflation.
However, for those willing to wait, patience may pay off. Hannah Jones, an analyst at Realtor.com, stated that with the market adjusting to each new economic data point, fluctuations in mortgage rates may continue in the near term. But it is still expected that mortgage rates will gradually decline in the coming months and next year According to the latest forecast from Federal National Mortgage Association, it is expected that the 30-year mortgage interest rates will drop to below 6% in early 2025, and further decrease to 5.6% by the end of next year