Why did Mortgage Rates Rebound?

Why did Mortgage Rates Rebound?

Since the Fed cut rates in mid-September, average 30-yr mortgage rates have moved UP from 6.11% to 6.92%. Why? That’s the question everyone is asking. Here are 4 responses, which in some combination could help to explain this unwelcome move:

“Typical” post Fed rate cut moves.

As conflicting as it sounds, it’s fairly common for treasury bond prices to fall (and mortgage rates to rise) immediately after the Fed initiates a rate cut cycle. It’s a ‘buy on rumor, sell on fact’ phenomenon. In this case, the market had already priced in multiple, large rate cuts before year-end.

Unsupportive data since the Fed cut.

The September BLS jobs report that came out on 10/4 was a blowout: +254K jobs added, unemployment rate 4.2% → 4.1%. And then the latest inflation report saw “core” CPI rise from +3.2% YoY in August to 3.3% YoY in September. Would the Fed have cut rates 50 bps if they knew this report was coming?

The October Effect.

Historically, October has been a bad month for financial markets. The 1929 stock market crash and Black Monday in 1987 both happened in October. And in each of the last 3 years, bond prices have gotten hit hard in October. Recall that in October 2023, average 30-year mortgage rates peaked at 8.07%.

Election-related Fears.

Who will increase the annual deficit and federal debt most? Neither candidate is addressing this. Sadly, advocating for a balanced budget is not popular to voters. Would a Trump victory stoke inflation, or a Harris win push our national debt ($35 trillion = 125% of GDP) even higher?

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Pauline Lee | pauline@indmortgage.com | (617) 965-1988 x205 

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