Weekly Mortgage Rates Are Up, But Market Optimism Persists

The average rate on the 30-year fixed-rate mortgage increased by two basis points to 6.35% for the week ending September 25, as reported by Zillow and provided to NerdWallet. A basis point is defined as one one-hundredth of a percentage point.

This marks a notable shift from the previous two weeks, which experienced double-digit basis point declines leading up to the Federal Reserve’s September meeting.

While the Fed

doesn’t directly set mortgage rates

, APRs generally move in line with lenders’ expectations of the federal funds rate. Mortgage rates

dropped last week

as lenders anticipated a reduction in the federal funds rate.

On September 16, the average 30-year APR fell to just above 6%, a level not seen in nearly a year, right before the Fed’s announcement.

As expected, the Fed cut rates by 25 basis points. However, shortly after,

mortgage rates began to rise again

. This raises the question: why are lenders increasing mortgage rates if the Fed’s actions were as anticipated?

Mortgage rates are influenced by a variety of economic factors. Lenders often react to new reports while also anticipating future data. Following the Fed meeting, it was unlikely that rates would drop immediately, as lenders had already adjusted them downward in anticipation of the committee’s decision.

Currently, mortgage rates are trending upward primarily due to the rising

10-year treasury bond yield

, which has been increasing even after the Fed’s cut. While the federal funds rate can influence mortgage rates, bond yields provide a clearer indication of trends.

Treasury bonds are viewed as a safer investment compared to stocks and other high-risk financial products, as they are government-backed. An increase in yield indicates that bond prices are falling, which typically occurs when investors are confident in the economy, including the real estate market, and are less inclined to seek out treasury bonds as a safe haven.

This situation presents an economic paradox. When mortgage rates are expected to decrease, it suggests that the market will perform better, leading to increased home purchases. This optimism can drive bond yields higher, consequently pushing mortgage rates up. It’s a complex interplay that doesn’t always follow a straightforward logic.

According to data released by the National Association of Realtors (NAR) on September 25, sales of existing homes remained relatively stable in August, showing a slight dip of 0.2% month-over-month. Year-over-year, sales increased in the Midwest and South, while the Northeast and West saw declines.

Despite this, NAR chief economist Lawrence Yun expressed optimism about the future. “Mortgage rates are declining and more inventory is coming to the market, which should boost sales in the coming months,” he noted in the news release.

Yun also highlighted the “record-high stock market,” suggesting that some homeowners may feel more financially secure and have the flexibility to “trade up,” which could create momentum in high-end listings.

However, he acknowledged that buyers are facing a limited inventory of “affordable” homes, with the median home price last month exceeding $400,000.

Homeowners with moderately priced homes may feel that current APRs are significantly higher than their existing rates, making it difficult to justify a move. Yet, if rates decrease substantially in the coming months, average homeowners might finally gain some of the mobility that wealthier buyers have enjoyed.