Key facts
- Economists expect the Federal Reserve to raise interest rates by 25 basis points at its September meeting.
- Mortgage rates for 30-year conforming loans averaged 7.28% on Tuesday.
- The 10-year Treasury yield has climbed to nearly 5%, a primary driver of higher mortgage rates.
- The Fed last raised rates in July 2023.
Mortgage rates have continued to climb in September, with 30-year conforming loans averaging 7.28% as of Tuesday, according to HousingWire's Mortgage Rates Center. This rise is attributed to geopolitical turmoil, bond market volatility, and other macroeconomic factors. Rates for 30-year jumbo loans averaged 7.47%, and FHA loans averaged 6.86%.
Economists widely anticipate that the Federal Reserve will implement a 25-basis-point interest rate hike at its upcoming meeting, driven by persistent inflation and a robust job market. A Bloomberg survey indicated that 13 out of 48 economists expected a hike before the August Consumer Price Index (CPI) data was released, which showed prices rising 3.4% year over year. Market participants, via CME Group's FedWatch tool, show a 92% expectation for a 25-bps increase, which would bring the federal funds rate to a range of 3.75% to 4%.
Sam Williamson, senior economist at First American, identified the recent volatility in the bond market, with the 10-year Treasury yield nearing 5%, as a key factor in higher mortgage rates. He noted that the Fed's updated Summary of Economic Projections will be crucial for understanding future policy, suggesting that firmer job growth and inflation may lead officials to pencil in another hike, potentially keeping upward pressure on long-term Treasury yields.
Melissa Cohn, regional vice president at William Raveis Mortgage, suggested that a rate hike could paradoxically lead to lower mortgage rates in the short term by signaling the Fed's commitment to fighting inflation. However, she also commented on Treasury Secretary Scott Bessent's announcement of a bond buyback program, stating it has not had its intended effect and that bond yields have risen further, suggesting the market views it as a mistake.
Dan Ribler, vice president of capital markets and strategy at Longbridge Financial, linked rising Treasury rates to a strong economy, particularly in manufacturing and services sectors, which are indicators for inflation. Hector Amendola, president of SimplyPMG, believes that despite higher rates, the current market offers better negotiating positions for buyers, with houses sitting longer and fewer bidding over asking price.
Charles Goodwin, vice president and head of bridge and DSCR lending at Kiavi, indicated that the real estate investor market remains well-positioned due to strong competition among DSCR lenders, who are focusing on execution speed and ease of process in addition to price.