Mortgage rates have inched higher after the Federal Reserve cut benchmark interest rates, a counterintuitive but common phenomenon.
The average 30-year fixed mortgage rate was 6.35% on Friday, up from 6.13% the day before the Fed cut rates, according to Mortgage News Daily.
Mortgage rates ticked up after the central bank delivered its widely expected 25 basis point cut, with Fed Chairman Jerome Powell cautioning that “there is no risk-free path” as the Fed tries to navigate a weakening labor market and relatively hot inflation.
The Fed doesn’t directly control mortgage rates, though its interest rate decisions can influence them.
“Our policy rate changes do tend to affect (mortgage rates),” Powell said. “That has been happening. That will, of course, raise demand.”
Ten-year Treasury yields, which mortgage rates closely track, initially fell on Wednesday after the cut but ended the day higher. They rose again on Thursday after new data showed a sharp drop in unemployment claims.
Before the recent uptick, mortgage rates had been moving steadily downward for several weeks as financial markets anticipated the Fed’s cut and new data showed that hiring was losing steam.
Where mortgage rates go next is anyone’s guess. Last year, the Fed cut rates three times between September and December, and mortgage rates rose throughout that period. Fed officials are penciling in two more rate cuts this year, but remain divided over their short-term economic outlook.
“With financial markets anticipating a more rapid easing of monetary policy than the Federal Reserve is likely to deliver, mortgage rates aren’t likely to fall much further,” Orphe Divounguy, senior economist at Zillow, said in a statement.
Similarly, Rocket Chief Business Officer Bill Banfield said in a statement that mortgage rates were likely to be “relatively flat” in the short-term because financial markets had already priced in the latest cut.
There are signs that more borrowers are taking notice of the recent downward moves in mortgage rates. Refinancing demand surged 58% through Friday compared to a week earlier and is up 70% from this time a year ago, according to Mortgage Bankers Association data. Mortgage applications for home purchases also rose 3% week-over-week.
While mortgage demand is showing signs of improvement now, home sales have been slow for much of the year as buyers struggle to afford near-record high home prices and mortgage rates north of 6%. Lower rates alone might not be enough to boost the market, Powell said.
“I think most analysts think it has to be big changes to matter a lot for the housing sector,” he said.
