Mortgage rates have risen significantly for the second week in a row, despite the Federal Reserve lowering interest rates for the first time in nearly a year. This contrast underscores the complexity of the factors influencing borrowing costs, which are not directly tied to central bank decisions.
Freddie Mac reported that the average interest rate for a 30-year fixed mortgage reached 6.34% this week, compared to 6.3% last week and 6.12% during the same period last year. Lenders set these rates based on broader indicators, primarily the yield on 10-year U.S. Treasury bonds and mortgage-backed securities, according to Bankrate.
Hannah Jones, Senior Economic Research Analyst at Realtor.com, explained that mortgage rates are closely linked to Treasury yields, which are influenced by economic data and market expectations. Additional factors include inflation, government policies, global events, and borrower-specific considerations such as credit score, down payment size, and property type.
Markets React Cautiously to Fed’s First Rate Cut Since 2024
On September 17, the Federal Open Market Committee cut the federal funds rate by 25 basis points — the first cut since December 2024. However, Federal Reserve Chair Jerome Powell stated that future decisions would be data-dependent and did not commit to further reductions. This cautious stance prompted investors to reassess their expectations.
Before the Fed’s announcement, markets anticipated a rate cut, which temporarily lowered Treasury yields and mortgage rates. But the absence of clear signals for further easing led yields to climb again, pushing mortgage rates higher, Jones noted.
Jiayi Xu, Chief Economist at Realtor.com, believes interest rates are likely to remain steady in the near term, especially as markets assess the impact of a potential government shutdown. She noted that the timing of this uncertainty is particularly sensitive, coming right after the first rate cut in nine months — a development that has heightened anticipation and uncertainty in the housing market.