Mortgage rates have seemingly been poised to start dropping any day now, especially given that the Federal Reserve has begun making long-awaited interest rate cuts. However, despite these expectations and much to potential homebuyers’ chagrin, mortgage rates are moving in the opposite direction.
“The 30-year fixed-rate mortgage has ticked up for the last five weeks, clocking in at 6.72% at the end of October, according to the mortgage-finance company Freddie Mac,” said The Washington Post in early November. Bafflingly, “that’s higher than when rates were slightly above 6% around the Fed’s last meeting in September.” Furthermore, “mortgage rates have not only stayed elevated but have reversed virtually all the declines that began in mid-summer, reaching as high as 6.73% in some states,” said Investopedia.
So, what gives? And when will rates ever actually come down?
Why are mortgage rates still high?
For starters, “while mortgage rates often move in step with the Fed’s benchmark rate, they’re more directly tied to 10-year Treasury bond yields,” said CNBC Make It. “These yields tend to rise when investors expect stronger economic growth and higher inflation — even when the Federal Reserve is cutting the federal funds rate.” Indeed, in a speech last month, Fed Governor Christopher Waller announced a “recent string of strong data suggested ‘the economy may not be slowing as much as desired’ and that as data continues coming in, the central bank might lower rates more slowly than officials thought last month,” said the Post.
Another factor in the rise of mortgage rates is “simple supply and demand,” said Investopedia. Right now, “many homeowners don’t want to sell their homes because they lucked into a dirt-cheap, pre- or early-pandemic mortgage and rate,” and the difference against today’s rates would be unprofitable. Meanwhile, “with rates remaining stubbornly high, fewer buyers are willing to take out a mortgage to purchase the properties that do make it to market.”
The election may have also played a role, as “housing economists and mortgage players have seized on a new narrative — that four more years of President-elect Donald Trump will mean ever-growing deficits,” said Bankrate. Indeed, said CNBC Make It, “following Donald Trump’s Presidential election win, 30-year fixed mortgage rates briefly surged.”
Where are mortgage rates expected to head next?
Unfortunately, the question of where mortgage rates are headed in the future is “difficult to answer,” said NPR, “since mortgage rates are affected by so many factors.” The one thing that seems certain, however, is that “they likely won’t go anywhere near the levels of a few years go,” when “in 2019, for example, rates for a 30-year fixed-rate mortgage ranged from about 3.75% to 4.5%” and dipped “as low as 2.65% in early 2021 as the pandemic wore on.”
In the near term, “many forecasts have rates near 6% at the end of this year — and falling to about 5.8% next year,” said NPR. Further into the future, mortgage rates “will likely remain around 6% well into 2025, according to forecasts by major mortgage lenders and industry associations,” said CNBC Make It.
What should prospective homebuyers do for now?
If you have been waiting for a while for rates to come back down to make home buying a bit more feasible, you may wonder whether or not you should continue to just sit tight.
But as it turns out, “experts advise against trying to time the market — including when it comes to buying a home,” said NPR. This is for two reasons: “First, if you buy a home and then mortgage rates do fall, you can refinance your mortgage and take advantage of the lower rate,” whereas “if you wait and rates go up, it just gets harder to afford a home.” And second, “home prices do tend to rise over time,” which can make it more beneficial to buy sooner rather than later.
In other words, while lower mortgage rates would be ideal, it “may be in your best interest to take out a mortgage when you can afford to do so, not when you believe the market will become more favorable,” said Investopedia.