It wasn’t meant to be.
Real estate agents, mortgage brokers and economists expected a busy fall homebuying season as inventories improved and buyers — buoyed by the Federal Reserve’s massive rate cut — came off the sidelines to take advantage of mortgage rates at a two-year low.
But after a vanishingly short honeymoon period, interest rates began to rise. They have risen for five weeks in a row and have risen above 7% in recent days, a level that some market watchers say will keep potential buyers out. Home construction contract activity showed signs of life in September when mortgage rates were lower, but home sales are on track to hit their lowest levels in decades this year.
A combination of factors has caused mortgage rates to rise rapidly. Treasury yields, which closely track mortgage rates, have risen dramatically in recent weeks on strong economic data and pre-election jitters. The economic uncertainty surrounding next week’s elections could complicate their path back down.
“This rise in mortgage rates in recent weeks has likely been very surprising to Fed officials,” said Chen Zhao, head of Redfin’s economic research team. “I think it was a surprise to everyone.”
The Fed has no direct control over mortgage rates. Instead, interest rates move primarily based on expectations about the direction of interest rates in the future. Last month, a series of promising economic data on almost everything from consumer spending, inflation, wages and hiring raised questions about how much further the Fed would need to cut rates to support the economy in the coming months.
In other words, all these positive signals for the economy are marks in the negative column for a decline in interest rates – including home loans.
Read more: How the Federal Reserve’s interest rate decision affects mortgage rates
At the same time, Treasury yields began to rise dramatically as traders began pricing in a possible election victory for former President Donald Trump, whose proposed policy of tariffs and tax cuts is seen as bad for bonds – rates are generally inflationary, which would require higher interest rates . interest rates, while tax cuts would likely force the US to issue more debt. That could push up interest rates if there is no more demand to meet the increased supply.
Economic data released this week further clouded the picture. Treasury yields fell briefly Friday morning in response to a lackluster jobs report, raising the possibility that mortgage rates would fall in response. But the reaction was short-lived. By mid-morning they were higher again.
Bond investors and mortgage brokers who spoke to Yahoo Finance said they expected bond yields, and therefore mortgage rates, to be volatile in the immediate aftermath of the election. Many different outcomes remain possible – a red or blue sweep or some form of divided government – all of which would have different implications for the future economy and financial markets.
“Fasten your seat belt and fasten your seat belt,” says Michael Steller, a mortgage broker at Barrett Financial Group in Littleton, Colorado.
Steller said he expects mortgage rates to remain between 5.75% and 6.5% for a while, provided the economy remains strong. The Mortgage Bankers Association and Realtor.com are both calling for rates to end the year around 6.3%, but warn the path down could be choppy.
Read more: Mortgage Rates Still Rising: Is Now a Good Time to Buy a Home?
Fluctuating interest rates are not good news for a housing market that has been nearly frozen for almost two years. Listing and contract activity improved in September, but the recent rise in lending rates has prompted some buyers to pause.
“When interest rates go up, people get scared,” said Paul Carson, co-founder of Philadelphia Mortgage Brokers in Phoenixville, Pennsylvania. week because the market is moving.”
Kara Ng, a senior economist at Zillow, said the higher interest rate environment in October likely hampered the housing market’s comeback, but conditions could still ease in the coming months. She points to recent research from her company that found about 45% of recent homebuyers got mortgage rates below 5%, usually through special financing offers such as interest rate buydowns.
“I’m a bit optimistic,” Ng said. “I think buyers and sellers can work together to find a solution even in this more challenging environment.”
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages and home insurance.
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