U.S. mortgage rates rose for the fourth week in a row, rising as demand for housing weakened. Despite recent expectations of relief from expected Federal Reserve interest rate cuts, borrowing costs have continued to rise.
Freddie Mac reported that the average interest rate on a 30-year mortgage was 6.54% on October 24, 2024, a peak not seen since August. While the uptrend is still below this year’s high of 7.22% since May, it is starting to weigh on homebuyers.
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The expected Fed rate cut pushed mortgage rates to a low of 6.08% in September, but this temporary dip failed to stimulate the housing market. Sales of previously owned homes, which dominate the market, fell 1% in September from the previous month, dropping the annual adjusted rate to 3.84 million homes sold, the lowest since 2010, according to the National Association of Realtors (NAR).
Mortgage applications also fell, with a separate report from the Mortgage Bankers Association showing a four-week decline that reached levels not seen since July.
Experts suggest the drop in interest rates may have come too late in the season for most buyers, who typically hit the market in the spring, when families can more easily plan around the school year. Some buyers may also hold out, hoping that rates will fall even further, as the Fed has announced plans to continue adjusting rates through 2025.
For buyers, every small increase in interest rates increases monthly payments, adding to the burden of high home prices, which rose for the 15th straight month in September, according to NAR data. Higher home insurance costs are also putting pressure on family budgets.
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Analysts attribute the recent rise in mortgage rates to strong economic data and not to Fed policy. Although mortgage rates are tied to 10-year Treasury yields, which many expected to fall due to expected Fed rate cuts, stronger-than-expected economic performance has pushed rates higher.
For example, job growth exceeded expectations in September, and recent retail spending reports indicate stable consumer demand, boosting investor expectations and boosting bond yields.
This led Sam Khater, Freddie Mac’s chief economist, to note that “mortgage rate volatility has remained elevated due to the tension between gloomy economic projections and solid data.”
On October 24, the yield on ten-year government bonds stood at 4.24%, the highest level since July. Higher interest rates cause bond prices to fall, forcing investors to demand higher interest rates on government bonds. The government’s financial situation, including budget deficits and the approaching 2024 elections, is increasing pressure on the government bond market.
According to projections from the Committee for a Responsible Federal Budget, a second Trump presidency could increase the national debt by $7.5 trillion by 2035, compared to $3.5 trillion under the Harris presidency, further fueling long-term debt concerns become bigger.
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Billionaire investor Paul Tudor Jones said of the budget problems: “We will soon go bankrupt unless we get serious about addressing our spending problems.”
Lawrence Yun, NAR’s chief economist, highlighted how government borrowing affects mortgage markets, noting that persistent federal deficits could undermine the availability of mortgages. 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 were hoping for.”
As CNN reports, waiting remains the usual strategy for hopeful homebuyers. Kimberly Bradley, a young mother from North Carolina, said that although others have urged her to buy a home now, she is hesitant to commit to current rates. “I don’t want to be stuck at a rate I don’t like for years,” she explained, noting that she was looking for stability in her future payments.
Ken Lowrey, a renter in Charleston, South Carolina, echoed similar concerns, describing homeownership as his “goal of security.” Rising rents and unexpected medical expenses wiped out his $7,000 savings, forcing him to postpone major life choices to save for a home.
“I’ve been putting off everything from having children to saving for retirement,” he said, indicating that affordability – whether through lower interest rates or home prices – is the deciding factor for him.
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This article The Fed is cutting rates, so why are mortgage rates rising? The Truth Behind the Housing Market’s Latest Curveball originally appeared on Benzinga.com
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