When the Federal Reserve at last moved forward with lowering interest rates this autumn, many prospective buyers hoped for some relief after dealing with steep mortgage rates for more than two years. Although the Fed approved yet another 0.25% rate reduction on December 18, the outlook for lower mortgage costs seems to be stretching rather than shrinking.
The average interest rate for a conventional 30-year fixed mortgage stands at 6.93% today, which marks a 0.20% jump from a week ago. Meanwhile, the average rate for a 15-year fixed mortgage is 6.20%, up by 0.16% compared to the previous week.
Experts in the field worry that President-elect Donald Trump’s planned economic measures might set off a renewed surge in inflation, which could slow the pace of rate decreases even further in 2025. While mortgage rates fluctuate constantly, they’re expected to remain above 6% for some time.
“What’s going on with mortgage rates right now?”
In the early days of the pandemic, borrowers enjoyed historically low interest rates, but in 2022 the Federal Reserve began raising its core rate in an effort to counteract inflation and moderate economic activity. As a consequence, mortgage rates spiked, surpassing 8% in 2023.
Although the central bank’s pivot back toward reducing rates is generally considered good news for the housing market, it’s important to remember that each Fed cut makes it cheaper for financial institutions to borrow money, which can lower the cost of consumer loans, including mortgages. However, the Fed doesn’t directly control home loan rates. Instead, factors such as investor sentiment, international events, and bond market behavior ultimately determine whether mortgage rates move higher or lower.
Looking to the near term, Trump’s reelection is expected to usher in tariffs and tax breaks, creating anxiety among bond investors who fear bigger deficits and accelerating prices, said Chen Zhao, head of economic research at Redfin. Elevated debt levels often correlate with pricier borrowing.
Month by month, new data on inflation and jobs will influence how markets and investors react, potentially pushing mortgage rates up or down. The direction of next year’s mortgage market will hinge on a mixture of elements, including fiscal initiatives, the 10-year Treasury yield, ongoing global tensions, and other broad economic and political considerations.
{Matzav.com}