MW Mortgage rates were expected to fall, but they're surging. There's a reason for that.

By Aarthi Swaminathan

Prospective home buyers should prepare for a 'bumpy ride,' analyst says

Most economists were expecting mortgage rates to fall over the course of the coming year. But rates have risen steadily over the last month, inching back up to 7% - and they're expected to move even higher in the coming weeks.

Blame the strength of the U.S. economy, experts say: The stronger the economy is, the less likely the Federal Reserve will be to cut interest rates, because the economy doesn't seem to need support in the form of lower borrowing costs.

The U.S. economy added more jobs than expected in December, according to Labor Department data released Friday. The unemployment rate fell slightly from the previous month, while jobless claims fell to the lowest level in nearly a year.

The strong jobs report is prompting financial markets to reconsider the pace of rate cuts. And that dynamic is pushing the 30-year mortgage rate higher.

The Federal Reserve's monetary policy doesn't directly impact mortgage rates; rather, the 30-year mortgage rate typically rises and falls in tandem with the yield on the 10-year Treasury note BX:TMUBMUSD10Y. The 10-year yield has inched higher over the past few weeks, bringing the 30-year mortgage rate up along with it, as financial markets speculate about what the Fed will do next.

"In the near term ... I do think today's stronger-than-expected jobs report will tend to push longer-term interest rates, including mortgage rates, higher," Danielle Hale, the chief economist at real-estate platform Realtor.com, told MarketWatch.

Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch publisher Dow Jones is also a subsidiary of News Corp.

The 30-year mortgage rate is averaging close to - and at times higher than - 7%, according to various industry measurements. The Mortgage Bankers Association, a trade group that surveys lenders, had the 30-year rate at 6.99% as of Jan. 3. Freddie Mac (FMCC), a government-sponsored enterprise that backs residential mortgages, said the 30-year rate averaged 6.93% as of Jan. 9.

Mortgage News Daily, which also surveys lenders, said the 30-year rate was 7.24% as of Jan. 10, up 9 basis points from the previous day.

The recent increase in mortgage rates calls into question predictions that they will fall over the coming months.

Read more: Will mortgage rates fall below 6% in 2025? Here's what experts say.

Some economists have changed their projections. Mike Fratantoni, the chief economist at the Mortgage Bankers Association, said after the U.S. presidential election that the group now expects the 30-year rate to average close to 6.5% over the next few years, "with significant volatility around that average."

Fratantoni also said after the December jobs report that the figure could prompt the Fed to pause its rate cuts in 2025, "which will push mortgage rates higher in the near term."

Home buyers should prepare for a "bumpy ride," Greg McBride, the chief financial analyst at Bankrate, told MarketWatch. But they shouldn't try to time the market by waiting for a drop in the coming weeks or months, he added. Referring to whether buyers should lock in a rate with their lender now or wait, he said: "The point where you lock [in a mortgage rate] is when you've got visibility as to your closing date."

He added: "Trying to time the market is often a fool's errand. You're buying a house. This is going to be the biggest part of your monthly budget. It's the biggest financial transaction you're going to make. ... You don't want to be rolling the dice too many times."

-Aarthi Swaminathan

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January 10, 2025 16:56 ET (21:56 GMT)

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