The Fed Cut Rates, So Why Did Mortgage Rates Spike? Here’s What’s Going On
In September, the Fed cut its benchmark rate, raising hopes for lower mortgage rates. Yet this month, mortgage rates are actually higher. Here’s a breakdown of the drivers behind the recent rate increase and how it’s affecting monthly payments.
Why Mortgage Rates Rose Instead of Falling
Mortgage rates and the Fed’s rate don’t move in lockstep. Mortgage rates are more influenced by the 10-year Treasury yield, which reacts to investor expectations, especially around inflation and economic indicators.
Strong Jobs Report in September: The latest jobs data exceeded expectations, showing 254,000 new jobs, a 4.1% unemployment rate, and wage growth of 0.4% for the month. These numbers indicate a resilient economy, which can intensify inflation concerns and push mortgage rates higher. Although Fed Chair Jerome Powell noted the job market has “cooled,” the report reinforces the idea that inflation may persist, causing investors to seek higher returns on long-term securities and driving up mortgage rates.
Market Anticipation for Upcoming Events: With the Fed set to meet again soon, and the election on the horizon, investors are positioning themselves for potential rate volatility. This positioning has led to recent increases in mortgage rates.
Impact on Monthly Mortgage Payments
To put the effect into perspective, an $800,000 mortgage that cost around $4,791 per month at 5.99% now costs approximately $5,322 per month at 7.0%. That’s a $531 monthly increase for the same loan amount.
Looking Ahead: Key Events in November
As we approach November, key indicators like the jobs report, election results, and the Fed’s decisions will continue to influence mortgage rates. Here’s what to watch:
Early November Jobs Report: Another strong jobs report could sustain higher rates, while weaker data may help rates stabilize.
The Election’s Impact: Political shifts and market responses can create more volatility, further influencing mortgage rates.
Fed’s Next Rate Decision: While the Fed may stay cautious, its guidance will be key, with investors closely analyzing any forward direction.
Tips for Navigating This Rate Environment
With rising rates, buyers and homeowners may benefit from these strategies:
Consider Rate Locks with Float-Downs: Lock in a rate while retaining flexibility to adjust if rates fall.
Explore ARM Options: Lower initial rates may be beneficial if you plan to refinance later.
Reassess Budgets: The rise in rates and payments may impact affordability, so consider making budget adjustments or exploring different loan types.
Final Takeaway
Current rate volatility is influenced by complex, longer-term economic indicators—especially employment and inflation. Mortgage rates won’t necessarily follow the Fed’s benchmark moves. By staying informed and working with trusted advisors, you can navigate these changes effectively. If you have questions about your options, don’t hesitate to reach out.