The Fed Cut Rates, So Why Are Mortgage Rates Climbing? The Truth Behind The Housing Market's Latest Curveball

U.S. mortgage rates rose for a fourth consecutive week, climbing as housing demand waned. Despite recent expectations of relief from anticipated Federal Reserve rate cuts, borrowing costs have continued to rise. 

Freddie Mac reported that the average rate of a 30-year fixed mortgage hit 6.54% by Oct. 24, 2024, a peak unseen since August. Although still below this year's high of 7.22% from May, the upward trend has started to weigh on homebuyers.

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The anticipated rate cut by the Fed brought mortgage rates to a low of 6.08% in September, yet this temporary dip failed to ignite the housing market. Sales of previously owned homes, which dominate the market, slipped 1% in September from the prior month, bringing the annual adjusted rate down to 3.84 million homes sold, the lowest since 2010, according to the National Association of Realtors (NAR). 

Mortgage applications also declined, with a separate report from the Mortgage Bankers Association showing a four-week dip, reaching a level not seen since July.

Experts suggest that the rate dip might have come too late in the season for most buyers, who typically enter the market in spring when families can more easily plan around the school year. Some buyers may also hold out, hoping that rates might drop even further since the Fed has signaled plans to continue adjusting rates through 2025. 

For buyers, each small uptick in rates raises monthly payments, adding to the burden of high home prices, which in September rose for the 15th straight month, according to NAR data. Increased home insurance costs are also stretching family budgets.

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Analysts attribute the recent rise in mortgage rates to strong economic data rather than Fed policy. While mortgage rates are linked to the 10-year Treasury yield, which many expected to fall with anticipated Fed rate cuts, stronger-than-expected economic performance has driven yields up. 

For instance, September job growth exceeded forecasts, and recent retail spending reports indicate steady consumer demand, bolstering investor expectations and nudging bond yields upward. 

This led Sam Khater, Freddie Mac's chief economist, to observe that "volatility in mortgage rates has remained high due to this tension between gloomy economic projections and solid data."

As of October 24, the 10-year Treasury yield was at 4.24%, its highest since July. With higher yields, bond prices fall, requiring investors to demand higher interest on government debt. The government's financial situation, including budget deficits and the looming 2024 election, adds pressure to the Treasury market. 

According to projections by the Committee for a Responsible Federal Budget, a second Trump presidency could expand the national debt by $7.5 trillion by 2035, compared to $3.5 trillion under a Harris presidency, intensifying concerns around long-term debt. 

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Billionaire investor Paul Tudor Jones commented on fiscal challenges, "We're going to be broke quickly unless we get serious about dealing with our spending issues."

Lawrence Yun, chief economist for NAR, highlighted how government borrowing impacts mortgage markets, remarking that ongoing federal deficits may sap mortgage availability. He said, "Every time the government borrows more, it means there is less mortgage money available for the housing market, potentially limiting the rate cuts we've been hoping for."

As reported by CNN, waiting remains the common strategy for hopeful homebuyers. Kimberly Bradley, a young mother from North Carolina, shared that although others have urged her to buy a home now, she's hesitant to commit at current rates. "I don't want to be stuck with a rate I don't like for years," she explained, noting that she's seeking stability in her future payments.

Ken Lowrey, a renter in Charleston, South Carolina, echoed similar concerns, describing homeownership as his "goal post of security." Rising rent and unanticipated health expenses wiped out his $7,000 in savings, forcing him to delay significant life choices to save for a home. 

"I've postponed everything from having kids to saving for retirement," he shared, indicating that affordability—whether through lower rates or home prices—is his deciding factor.

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