In recent weeks, economic indicators have shown that interest rates are trending higher. Since mid-September, the 10-year U.S. Treasury yield has increased by 0.4%, while mortgage rates have risen by about 0.25%. This trend is largely due to a combination of factors, including a stronger-than-expected September jobs report and inflation that remains stubbornly above the Federal Reserve’s 2% target.
The Consumer Price Index (CPI) for September showed some progress, with overall inflation down to 2.4%, the lowest since March 2021. However, core inflation (excluding food and energy) ticked up from 3.2% in August to 3.3% in September, and core Producer Price Index (PPI) inflation also increased. These inflationary pressures suggest that the Fed’s job of bringing inflation under control is far from over, despite some cooling.
Impact on Mortgage and Housing Markets
For the housing market, this means that mortgage rates are likely to stay elevated in the near term. The 30-year mortgage rate, has risen by about 0.3% since the Fed lowered base rates on September 18. While short-term Treasury yields have declined slightly, longer-term rates (which affect mortgage rates) are expected to remain high due to market expectations of a “soft landing” scenario where the economy avoids a severe downturn.
Looking Ahead
The next major economic report to watch is the Q3 GDP estimate, due on October 30. A strong growth number could further reinforce the upward pressure on rates. Meanwhile, the markets are pricing in a 90% chance of a 25-basis-point rate cut in November, but cuts are expected to be modest and gradual, with the Fed funds rate projected to fall to 3.5% by October 2025. However, significant reductions in mortgage rates may not materialize in the short term.
At Keller Home Loans, we understand that today’s elevated mortgage rates are creating affordability challenges for many buyers. However, by working closely with our team, real estate agents can provide their clients with smart, tailored solutions to ease this burden. Whether it’s reviewing buydown options, taking a look at adjustable-rate mortgages (ARMs) that offer lower initial rates or helping them access down payment assistance programs, we’re here to support you every step of the way.