Mortgage rates have jumped higher in recent weeks — an ugly surprise for would-be homebuyers who were hoping the Federal Reserve’s outsize rate cuts last month would provide relief.
The average 30-year fixed mortgage rate has increased for the third week in a row to 6.5%, according to Freddie Mac.
That rate is a quarter-point higher than it was two weeks ago.
The Fed slashed its key lending rate by half a percentage point in mid-September — twice the size of the quarter point many economists had expected, stoking hopes that stubbornly high borrowing costs would finally ease for prospective home seekers.
But mortgage rates align more with the yield on 10-year treasury bonds.
The yield has increased in recent weeks after a bout of economic data that have raised doubts about whether the Fed has tackled inflation.
Last week, the Labor Department’s Consumer Price Index rose 2.4% versus a year ago — ahead of forecasts and north of the central bank’s 2% target.
A week earlier, former Treasury Secretary Larry Summers said the Fed had made a “mistake” by cutting interest rates so sharply.
Also adding to mortgage costs are the lenders themselves, since they typically add their own percentage on top to make a profit.
Mortgage rates also largely depend on individual factors, like credit score and the type of loan.
Analysts previously told The Post that homebuyers will likely have to wait around 90 days from the time of the rate cuts before they see a significant drop.
The rates for a 30-year mortgage in 2019 hovered around 3.75% and 4.5%.
Mortgage rates dropped as low as 2.65% in early 2021 as homebuying stalled during the pandemic.
Americans should not expect rates to dip below 6% by the end of this year.
“I think the new normal is maybe 6% mortgage rate,” Lawrence Yun, chief economist at the National Association of Realtors, told NPR. “If we are lucky, maybe we get to 5.5% mortgage rate. Or if we are unlucky, maybe the mortgage rate trends back up towards 7%.”
Yun said the days of 3% and 4% mortgage rates are over.
Consumers typically hesitate to hunt for houses while mortgage rates remain high.
But experts say homebuyers should not hit pause on their search despite hefty rates since home prices tend to grow over time.
Rather, they can refinance their loans when rates come down, along with consumers in debt who took out their loans prior to the rate cuts.
Meanwhile, interested buyers can take advantage of a seemingly less competitive housing market.
The number of homes for sale last month was 6.4% higher than the month before and 33.6% higher than a year ago, according to a report from real estate brokerage RE/MAX.
Houses have been staying on the market longer and the number of people applying for mortgages has dropped three weeks in a row, the NPR report said.
However, home prices remain stubbornly high.
The median price has risen about 50% since early 2020 after spiking during the pandemic.
In August, the median home sales price was $416,700, up 3.1% from the median price a year before, according to the National Association of Realtors.