Mortgage Rates Rise to 6.22%, Ending Five-Week Decline

The average rate on a 30-year U.S. mortgage increased to 6.22% this week, marking the first rise in five weeks. This change comes after the rate fell to its lowest point in over a year, 6.17%, just last week, according to data from mortgage buyer Freddie Mac. A year prior, the average rate stood at 6.79%.

Borrowing costs have also risen for 15-year fixed-rate mortgages, often favored by homeowners looking to refinance. This week, the average rate for these loans climbed to 5.5%, up from 5.41% last week. A year ago, the rate was 6%.

Factors Influencing Mortgage Rates

Mortgage rates are shaped by various factors, including the U.S. Federal Reserve‘s interest rate policies and bond market expectations regarding the economy and inflation. Typically, these rates mirror the trajectory of the 10-year Treasury yield, a benchmark for pricing home loans. As of midday Thursday, the yield was at 4.09%, down from 4.16% the previous day.

Lower mortgage rates generally enhance homebuyers’ purchasing power and provide an incentive for homeowners eager to refinance existing loans. Since September 2022, the average rate on a 30-year mortgage has remained above 6%, which has contributed to a slump in the housing market. Last year, sales of previously occupied U.S. homes fell to their lowest level in nearly three decades. Although sales have been sluggish this year, they picked up pace in September, reaching their fastest rate since February as mortgage rates eased.

Since July, mortgage rates have been declining, especially leading up to the Federal Reserve’s decision in September to reduce its main interest rate for the first time in a year. This decision was influenced by growing concerns regarding the U.S. labor market. The Fed made another rate cut last week in an effort to support the struggling job market. Nonetheless, Jerome Powell, Chair of the Federal Reserve, cautioned that further cuts are not guaranteed at the central bank’s final meeting of 2025 in December.

The Impact of Inflation and Market Trends

The Fed may also hold off on additional rate cuts if inflation continues to rise, particularly given the current administration’s increasing use of tariffs. Lower interest rates can exacerbate inflation, prompting bond investors to seek higher returns while inflation remains elevated. Should inflation rise, this could lead to higher yields on the 10-year Treasury note and, consequently, increased mortgage rates.

It is important to note that the Federal Reserve does not directly set mortgage rates. Even when the central bank reduces short-term rates, it does not automatically result in lower home loan rates. For instance, after the Fed’s first rate cut in over four years last fall, mortgage rates subsequently increased, peaking above 7% in January. At that time, the 10-year Treasury yield was approaching 5%.

The recent decline in rates has encouraged homeowners who purchased their properties in recent years, when rates exceeded 6%, to consider refinancing their loans for better terms. For many homeowners, refinancing becomes attractive only if mortgage rates fall below 6%. Data from Realtor.com indicates that approximately 80% of U.S. homes with a mortgage have a rate below 6%, and 53% of those have a rate below 4%.

As the housing market navigates these fluctuations, the decisions made by both the Federal Reserve and individual homeowners will play a critical role in shaping the future of mortgage financing and the broader economy.