After waiting years for interest rate cuts from the Federal Reserve, in the hopes that they would aid in lowering mortgage rates, homebuyers are now facing even higher mortgage rates.
This comes after mortgage rates were dropping, hitting their lowest point in over two years. But after a positive September jobs report came out, mortgage rates started ticking back up again.
The September jobs report showed significant job growth, which led investors to believe the economy was gaining strength. In response, they decided to sell safer assets like bonds and instead buy stocks, which made the 10-year Treasury yield go up.
Though this type of ripple effect isn’t uncommon, it’s a stark difference from the last time the Fed slashed interest rates in 2020, which resulted in a quick decline in mortgage rates.
A similar situation to the current climate happened back in 2019. The Fed made multiple dramatic interest rate cuts and short-term lending rates dropped, but mortgage rates didn’t follow suit, mostly due to economic growth expectations and fluctuations in the 10-year Treasury bond yield. Another example is the 2008 financial crisis, when the Fed cut rates so aggressively they were almost at zero, but mortgage rates still didn’t fall due to the housing market crisis and lenders’ concerns about credit risk.
The higher mortgage rates aren’t doing any favors for the housing market. Experts say potential buyers are being priced out, and homeowners aren’t willing to let go of the low interest rates they secured in 2020 and 2021, causing a stagnation in the housing market.
An analysis from Redfin found just 2.5% of U.S. homes changed hands this year, the lowest rate in decades. Experts say the Fed is expected to make another rate cut in November, but we shouldn’t expect mortgage rates to drop by much.
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