In September, the Federal Reserve lowered its interest rate for the first time since 2020, giving prospective homebuyers hope that mortgage rates will follow suit.
But instead of going down, mortgage rates went up.
On Thursday, giant Freddie Mac reported that the rate on its 30-year mortgage rose to 6.72%, up from 6.54% last week. It was the fifth week in a row of increases.
The fact that mortgage rates rose despite the cuts underscores that while the Federal Reserve has influence over mortgage rates, it does not set them.
Instead, prices are determined by what institutional investors who buy bundles of debt are willing to pay and various factors influence those investors.
Another is the standard rate set by the Fed in September, which lowers borrowing costs across the economy. Another expectation is inflation. This is because when you buy a 30-year mortgage, investors don't want to see the value of their investment erode over the years.
Mortgage rates fell ahead of the Fed's decision in September, as investors priced in the expectation that the Fed would be able to cut rates because inflation had slowed.
Experts said one of the main reasons why prices have increased since then is because the economic data came in stronger than expected. That ensures that inflation for investors will remain high for a long time and the Fed will not be able to lower rates as much as it could have.
It may have had a political impact as the polls have been strong in recent weeks.
Chen Zhao, an economist with real estate brokerage Redfin, said it appears that investors are increasingly believing that former President Trump will become Vice President Kamala Harris and retake the White House.
According to a recent survey from the Wall Street Journal, many economists predict inflation and interest rates will be higher under the policies proposed by Trump, who among other measures have called for tariffs on imported goods.
“The connection between taxes and inflation is very clear,” Zhao said. “There's not a lot of conflict there.”
As prices rise, domestic consumers feel shortchanged.
When rates recently bottomed out at 6.08%, the principal and interest payment on an $800,000 home would have been $3,870. Now it's $4,138.
Zhao said what happens next with rates depends on various factors, including who wins the election and what goals they are pursuing.
If there is no policy change, he can expect mortgage rates to fall next year because inflation is slowing. But he and other economists say don't expect anything close to 3% and below the range seen during the violence.
“We're talking about the top five, the bottom six,” Zhao said. “If President Trump wins, there's a lot of risk that prices could be higher.”
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