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The Street
The Street
Caitlin Cahalan

The surprising reason mortgage rates are up despite interest rate cuts


When the Fed cut interest rates last month for the first time since March 2020, there was a collective sigh of relief. The previous federal funds rate of 5.3% indicated a twenty-year high; it was implemented to curb rampant inflation but dramatically increased the cost of borrowing for consumers.

Economists and prospective home buyers anticipated lower mortgage rates, especially given the Fed is expected to cut rates another 0.5% by the end of 2024 and then several times in 2025.

Related: Dave Ramsey bluntly speaks on interest rates and mortgages

While it typically takes a few months for mortgage rates to drop after a federal funds rate cut, experts didn’t anticipate them increasing. This time around, however, mortgage rates have steadily increased over the past four weeks since the rate cut.

A few compounding economic factors may be to blame for this fluke market behavior. 

Why mortgage rates are rising

30-year fixed-rate mortgages averaged 6.08% on September 26th, the week after the Fed announcement. According to Freddie Mac's Primary Mortgage Market Survey, they have been climbing each week, reaching 6.44% on October 17.

The effect on a $250,000 mortgage: The monthly principal-and-interest payment would rise from $1,505 a month to $1,570. 

The 10-year Treasury Yield — which heavily influences mortgage rates — has been increasing over the past few weeks, driving mortgage rates up with it. The yield bottomed at 3.63% on Sept. 16 and was at 4.1% on Friday. 

The other primary drivers of increased mortgage rates — inflation and unemployment — have produced unexpected results this month.

More on home buying:

September 2024 jobs report: After several months of sluggish job growth, the report said 254,000 jobs were added to the economy. The unemployment rate fell from 4.2% to 4.1% The job growth especially surpassed analyst expectations and also drove up mortgage rates — a strong labor market is a sign of a healthy economy, which can boost interest rates.

October CPI update: The September CPI data— released on  Oct. 10— were a touch higher than expected, showing an unforeseen increase from 2.2% to 2.4%. Inflation drives up the prices of consumer goods and housing, including mortgages. It also reduces demand for mortgage-backed securities, which causes the value of those assets to drop, driving up mortgage rates.

A man is seen hanging a 'For Sale' sing outside a home.

Getty Images

How the 2024 Presidential election may impact rates further

Experts predict that this mortgage rate fluctuation will likely continue through at least the end of November.

In addition to market movements and economic indicators, economists predict that the upcoming presidential election results will impact mortgage rates, regardless of which candidate wins.

Related: Dave Ramsey explains how your mortgage is key to early retirement

If Kamala Harris wins, mortgage rates are expected to stabilize or even fall due to her proposed home-buying assistance policies.

Conversely, a Trump presidency would likely increase mortgage rates, in large part due to his tax cut plan and proposed tariff increases. Both of these would likely drive up inflation, prompting the Fed to keep interest rates high.

This means that prospective home buyers may want to hold off on buying until 2025 if they want to secure the lowest mortgage possible.

However, housing inventory is increasing, which may lead to better pricing. The average monthly mortgage payment decreased to $2,529 in September — its lowest level since January.

Related: Veteran fund manager sees world of pain coming for stocks

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