By Don DeBat

17-Nov-24 – With Thanksgiving approaching, it looks like holiday home buying at an affordable interest rate is beginning to look like leftover microwave turkey.

On November 14, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans averaged 6.78 percent, down just 0.01 percent from a week earlier.

The average was a more affordable 6.08 percent on September 26, following the Federal Reserve’s cut in its federal funds rate by half of a percentage point. A year ago, the 30-year fixed mortgage average was a lofty 7.29 percent.

On November 7, the Fed’s Open Market Committee lowered the federal funds rate by a quarter of a percentage point to a target range of 4.5 to 4.75 percent, as widely expected.

What is surprising to this writer, who has covered mortgage market trends since 1968, is why are home loan rates rising when the Fed is working to bring them down?

Apparently, the disparity between the Fed’s actions and the rates consumers are actually paying for loans is controlled by the Wall Street bond market.

Over the past six weeks, bond investors have relentlessly bid up yields on 10-year and 30-year United States Treasury bonds, which are closely correlated to mortgage and auto loan rates. The key 10-year Treasury bond rate was 3.7 percent on September 22. On November 7, ahead of the Fed meeting, it was 4.4 percent.

“It is clear that home purchase demand is very sensitive to mortgage rates in the current market environment,” noted Sam Khater (left), Freddie Mac’s Chief Economist, after mortgage rates inched up to 6.79 percent on November 7.

“As soon as rates began to rise in early October, home purchase applications fell and over the last month have declined 10 percent,” said Khater.

The Freddie Mac survey also reported on November 14 that 15-year fixed mortgage rates averaged 5.99 percent, also down 0.01 percent from a week earlier. A year ago, 15-year loans averaged 6.67 percent.

The survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

Fed Chair foresees inflation slowing

Economic analysts say the Fed’s ultra-cautious approach could mean federal fiscal policy is not meshing well with the nation’s investor fiscal policy.

In the fiscal year that ended September 30, the federal government’s deficit is $1.8 trillion, and 27 percent of that was put on our national credit card.

This is where the “American Dream” of affordable homeownership and the Presidential election results intersect. Some economists say President-elect Donald Trump’s economic agenda – which is focused on tariffs, tax cuts for corporations, and eliminating taxes on overtime pay, tips, and Social Security benefits – likely would drive the federal deficit higher, and eventually push home loan interest rates even higher.

“We continue to be confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained with inflation moving down to 2 percent,” said Fed Chair Jerome Powell.

(Right) Jerome Powell speaks at The White House on November 2, 2017, after being nominated by President Trump to be Fed Chair. Photo by Andrea Hanks.

The committee “will continue to monitor the implications of incoming information for the economic outlook” and “would be prepared to adjust the stance of monetary policy as appropriate,” Powell said.

The Fed said it is planning another quarter-point federal funds rate cut in December, followed by additional cuts of up to 100 basis points throughout 2025.

“In the near term, the election will have no effect upon our policy decisions,” Powell said. “We don’t know what the timing and substance of any policy changes will be.”

Looking into his crystal ball for the direction of interest rates in 2025, Powell said: “We do not know what the effects [of Trump policies] on the economy would be specifically, or whether and to what extent those policies would matter for the achievement of our goals of maximum employment and price stability.”

At his November 7 press conference, Powell told reporters that he didn’t believe the president had the authority to fire him, and he would not leave his job if Trump asked.

Good luck with mortgage hunting this winter!