The Federal Reserve has now cut interest rates twice this year, pushing the Fed Funds Rate down another quarter of a percentage point this week. However, if you’re looking to buy a home, you’ve probably noticed that mortgage rates haven’t dropped. They’ve done the opposite before.

Increases in the federal funds rate in 2022 and 2023 were among the reasons why mortgage rates rose from about 3.00% for a 30-year fixed-rate mortgage at the end of 2021 to 7.79% for the same type of loan in the week ending October 26, 2023. Increases in the Fed rate were also the reason credit card interest rates rose, as did interest rates on car loans, student loans and other types of loans.

Why aren’t all interest rates falling since the Fed cut rates? Consumers are especially wondering this when it comes to mortgage interest rates, which are not falling as many consumers thought they would.

For example, mortgage data from Freddie Mac shows that the average interest rate for a 30-year fixed rate mortgage was 7.22% in the week ending May 2, 2023, then dropped to 6.08% in the week ending September 26, 2024. (right after the Fed cut rates). From there, the average rate for a 30-year mortgage increased to 6.79% in the week ending November 7, 2024.

Why mortgage rates haven’t fallen

Mortgage interest rates are influenced by a wide range of factors beyond movements in the federal funds rate, according to Shawn DuBravac of the Avrio Institute. Mortgage interest rates are particularly sensitive to the interest rates on longer-term bonds, especially 10-year government bonds. At the same time, 10-year Treasury yields are influenced by Federal Reserve policy and several other factors, such as inflation expectations, global interest rate differentials, investor sentiment, and overall supply and demand dynamics.

DuBravac adds that 10-year Treasury yields have been rising lately, which has contributed to upward pressure on mortgage rates. Reasons for this could be increased investor concerns about the introduction of additional monetary stimulus into the economy, plus possible fiscal policy excesses of the new government.

Another key element that influences mortgage rates is the risk premium, or the excess return investors demand to hold mortgage-backed securities (MBS) compared to U.S. Treasury bonds. DuBravac says this incentive has recently been expanded.

“This is perhaps the most overlooked factor in explaining why mortgage rates are currently high,” he says.

Darren Tooley, senior loan officer at Cornerstone Financial Services in Southfield, Michigan, says the October Bureau of Labor Statistics (BLS) Jobs Report also played a role in today’s average mortgage rates. This report shows that 254,000 jobs were created in September, which is almost double the number predicted. These strong employment numbers may have changed market expectations, affecting mortgage rates in their own way.

What will it take for mortgage rates to drop?

If you wait for mortgage rates to drop so you can buy a house or refinance the loan on a property you already own, you could be in limbo for a long time. After all, it took 11 Fed rate cuts over a two-year period to bring mortgage rates from record lows to their current levels. So it would take a lot to have a significant impact.

Jaye Hohman of Hohman Finance says many factors could still contribute to lowering mortgage rates from current levels, including bad data on the economy, such as poor employment numbers or a slowdown in GDP growth. Other economic factors, such as an increase in delinquencies on credit cards or defaults on car loans, can also lower interest rates.

Chris Heller of Movoto Real Estate adds that lower inflation rates could lead to lower mortgage rates, especially as investors are more willing to accept lower rates. Economic stabilization is another key factor. If the economy moves toward sustainable growth without inflationary pressures, interest rates will fall, he said.

Heller also points out that Federal Reserve actions aimed at improving long-term economic health could contribute to a downward trend in interest rates, especially if those efforts lead to lower inflation.

“Mortgage rates are likely to fall as confidence in the economy increases and concerns about inflation diminish,” he says.

Should you wait to buy a house or refinance?

These explanations can help you understand more about what’s going on with current mortgage rates, but they won’t make your decision any easier if you’ve been waiting to buy or refinance. We all know that even a small interest rate reduction can make monthly mortgage payments significantly more affordable, and the savings can be even more significant with larger loan amounts. The opposite is of course also true.

Heller also says it’s important to take a long-term view when it comes to mortgage rates, even though current interest rates are higher than we saw in 2020 and 2021. For example, if you look back at historical mortgage rates over the past few decades, I’ll find that the average rate for a 30-year home loan rose as high as 18% in the early 1980s before declining for the rest of the fell closer to 7% to 10% for years. 80s, 90s and early 2000s.

You should also remember that the mortgage you have now does not have to last forever. Tooley says it’s always a good time to get a mortgage because you can always refinance (and even multiple times) if market conditions change.

He adds that waiting for mortgage rates to drop before buying a home can also add costs to the buying side of the equation, especially due to increased competition for homes when rates eventually fall. So even if you lock in a lower mortgage rate, you could end up paying a higher sales price for the home you want.

You can also wait until mortgage rates fall and house prices rise even further. What would you do then? Ultimately, most experts agree to buy a home when you are ready and can afford the required payment – ​​and not when the mortgage interest rate reaches some arbitrary number.