When the Federal Reserve cut its interest rates in September, experts believed it could bring down mortgage rates and provide relief to homeowners and hopeful buyers. However, the rates only increased in the weeks since the rate cut.
The contact rate for the 30-year fixed-rate mortgage term averaged 6.08% on Sept. 26, the week after the Fed announced a rate cut of 0.50%. Mortgage rates have only increased in the following weeks, settling at 6.44% in the week ending Oct. 17.
Mortgage rates for the 15-year term also increased from 5.16% in the week after the rate cut to the current 5.63%, according to data from Freddie Mac's Primary Mortgage Market Survey.
It is important to note that the Fed's interest rate does not directly influence mortgage rates. However, it influences other factors that affect the rates.
Why Are Mortgage Rates Increasing?
There are several reasons why mortgage rates are increasing, per The Street. This includes the 10-year Treasury Yield and other economic factors.
10-Year Treasury Yield
The yield represents the return investors receive for lending money to the US government. The yield is a benchmark for various interest rates in the country, including mortgage rates. This means that when yields increase, so do mortgage rates.
The 10-year Treasury Yield fell to 3.63% on Sept. 16---two days before the Fed's rate cut. It has since increased to 4.194%, marking the highest level since last July, CNBC reported.
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Jobs Growth
In September, 254,000 jobs were added to the economy, leading to a dip in the unemployment rate from 4.2% to 4.1%. A strong labor market typically signals a healthy economy, which can also drive up mortgage rates.
Consumer Price Index
Apart from employment growth, the Consumer Price Index in September also surpassed analyst expectations, rising from 2.2% to 2.4%. This increase reduces the demand for mortgage-backed securities, causing the values of those assets to drop. This, in turn, drives up mortgage rates.
Does the Election Play a Role in Increasing Mortgage Rates?
The recent rate fluctuations are expected to continue through the November elections. Should Kamala Harris win, experts expect the rates to stabilize or fall, especially because she has proposed several home-buying assistance policies.
Conversely, a Trump win can drive up rates even further, partly due to his plans to impose tax cuts and increase tariffs.
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