I’ve had a lot of clients ask me lately why mortgage rates are going up when the Federal Reserve, or “the Fed,” is lowering its rates. It’s a good question because, in the past, when the Fed cut rates, mortgage rates usually went down too. But this time, mortgage rates are moving in the opposite direction.

In September, the Fed lowered its main interest rate by 0.5%, and just this week, on November 7th, they lowered it again by 0.25%. Many people expected this to bring down mortgage rates, but instead, the average rate on a 30-year fixed mortgage has gone up to 6.72%, which is the highest it’s been since early August.

The reason for this is that mortgage rates don’t follow the Fed’s rate directly. Mortgage rates are more connected to the interest rates on long-term U.S. Treasury bonds, especially the 10-year Treasury note. The 10-year Treasury rate is affected by many things, like how investors feel about inflation (or rising prices) and the overall strength of the U.S. economy. Right now, strong spending by consumers, steady job growth, and other signs of a strong economy are pushing bond rates—and mortgage rates—up.

Another factor that’s creating uncertainty is the upcoming change in the U.S. presidency. With Donald Trump set to take office in 2025, some investors are worried that more government spending could raise inflation and make bonds and mortgage-backed securities less attractive. If investors expect more spending, they worry about higher inflation in the future. Higher inflation makes fixed-rate investments like bonds less appealing, so investors may demand higher returns to balance that out. This can lead to higher yields on bonds and, therefore, higher mortgage rates.

If you’re thinking about buying a home or refinancing, I know these rate changes can be confusing. Feel free to reach out with any questions – I’m here to help explain what’s happening and find the best options for your situation.

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