AYESHA RASCOE, HOST:
You might expect that mortgage rates would be falling right now after the Federal Reserve cut interest rates by half a point last month. But this week, mortgage rates jumped higher, with their biggest increase since April. Here to explain what's happening is Laurel Wamsley, NPR's personal finance correspondent. Hi, Laurel.
LAUREL WAMSLEY, BYLINE: Hey, Ayesha.
RASCOE: So mortgage rates went up this week, even though interest rates are lower. What in the world is going on here?
WAMSLEY: That's right. The latest data from Freddie Mac showed that the average 30-year mortgage rate had increased to 6.3% this week. That's about a quarter point higher than it was two weeks ago. That's probably an unwelcome surprise to the folks who are finally coming off the sidelines to start shopping for a home. So why is this happening? It's because mortgage rates aren't tied to the Fed's interest rate, but instead, they follow a different number. They yield on a 10-year treasury bond, and that went higher this week for a number of reasons.
RASCOE: Got it. So it's not set by the Fed? I mean, that's what I thought.
(LAUGHTER)
WAMSLEY: No, it's influenced by the Fed, but it's not set by the Fed. And also keep in mind that the local lenders who actually give you your mortgage need to cover their costs and make a profit, so they add their own percentage on top. And the specific mortgage rate that you would get would depend on your own factors, like your credit score and the size and type of loan that you're getting.
RASCOE: But overall, aren't mortgage rates lower than they were recently?
WAMSLEY: Yes, and that is the big picture to take away from this still. Even with this uptick, mortgage rates are more than a full point lower than they were this time last year, and lots of people are taking advantage of that. They're refinancing their mortgages if they bought a house in the last couple of years when rates were higher. The lower rates mean they can potentially save hundreds of dollars a month.
RASCOE: So it sounds like mortgage rates are sort of a moving target right now. Is there any sense of where they'll settle? And that's what I really need to know. Where are they going?
WAMSLEY: You and me both. So I posed that question to Lawrence Yun, the chief economist at the National Association of Realtors, and here's what he said.
LAWRENCE YUN: I think the new normal may be 6% mortgage rate, which we are very close to. If we are lucky, maybe we get to 5 1/2 percent mortgage rate.
WAMSLEY: Or we could be unlucky, he said, and the rate goes back up towards 7%. So this kind of predicting is hard, even for economists. But looking around at several forecasts, many of them have rates staying above 6% through the end of this year and falling to about 5.8 next year. So if you do want to buy a home, you might not want to wait to see if rates will drop 'cause if they do, you could always refinance to a lower rate. But if they rise, it just gets harder to afford a home.
RASCOE: So has this had any effect on the housing market? Like, are more people shopping for homes?
WAMSLEY: Well, it's still a little early to tell, since buying a home can take months from shopping to actually closing. But there are some indications that the lower rates are shaking things a bit looser.
RASCOE: So like what?
WAMSLEY: Well, for instance, more people are listing their homes for sale. There are 23% more existing homes on the market than there were a year ago. And there's a lot of new homes for sale, too. That's really good news for buyers who have not had much to choose from. And home sellers tend to be homebuyers as well, so those folks might be entering the market soon. And some sellers have probably been waiting for mortgage rates to drop because it's hard to give up the super-low rates that many locked in during the pandemic, even if they're outgrowing their current home. And then another indicator is that applications for mortgages have ticked up a bit, 8% higher than a year ago, which also suggests that more people are preparing to buy a home.
RASCOE: It's fall now. School has started. Is this a hot time for home sales?
WAMSLEY: Well, definitely not as much as spring and early summer are, so it could be March before we really see a rebound get going here. Fannie Mae is predicting that home sales could be 10% higher next year, coming off of the very low levels that we've been seeing. And as I said, this all goes to show how the Fed can influence mortgage rates, but it does not set them.
RASCOE: That's NPR's Laurel Wamsley. Thank you so very much.
WAMSLEY: You're welcome.
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