World Stock Watch

Mortgage Rates Defy Expectations, Continue to Climb

The recent interest rate cuts have brought welcome relief to borrowers with credit cards, personal loans, and auto loans. However, homebuyers are unlikely to reap the same benefits, as mortgage rates persist in their upward trajectory.

A Surprising Trend

Following the presidential election, 30-year fixed mortgage rates experienced a brief surge, stabilizing at 6.98% as of late. This marks a nearly 1% increase since September, despite the Federal Reserve’s two benchmark interest rate cuts totaling 0.75%. The disconnect between mortgage rates and the Fed’s benchmark rate lies in their correlation with 10-year Treasury bond yields, which tend to rise with expectations of stronger economic growth and higher inflation.

Economic Indicators Point to Growth

According to Melissa Cohn, regional vice president of William Raveis Mortgage in New York, “A series of economic data reports since mid-September have shown that the economy is stronger than expected.” As people find employment and earn a steady income, they tend to spend more, driving inflationary pressures. This sentiment is echoed by Michael Nourmand, president of Nourmand & Associates in Los Angeles, who notes that market expectations of accelerated budget deficit growth under the new administration could also contribute to rising mortgage rates.

Tariffs and Inflation Fears

Furthermore, proposed tariffs on imported goods could drive inflation by increasing prices, thereby pushing mortgage rates higher. While forecasts suggest a slight easing of mortgage rates in the coming months, they are likely to remain around 6% well into 2025 – nearly double their levels from three years ago.

Political Uncertainty Looms

If Republicans gain control of the presidency and both chambers of Congress, the potential for increased spending and borrowing could drive bond yields higher, leading to elevated mortgage rates. Conversely, continued deficit spending and discussions of additional tariffs on imports are likely to keep mortgage rates high through 2024, according to experts.

What’s Next for Homebuyers?

As the economic landscape continues to shift, homebuyers would do well to prepare for a mortgage rate environment that may remain challenging for the foreseeable future.