In September, the American Central Bank (Fed) finally reduced interest rates after a long period of increases. This measure gave hope to those looking to buy a property. With lower rates, the mortgage could become cheaper and make homeownership more accessible.
Indeed, there was an initial relief when the mortgage fell to its lowest rates in the last two years. However, this relief was short-lived, as in October, the mortgage rose again. This week, the average rate is at more than 6.5% per year.
Rates are still projected to fall throughout 2024 — largely due to expectations that the Federal Reserve will lower interest rates again at its next meeting. Still, many potential homebuyers are uncertain about whether they should buy now or wait to see if mortgage loans will truly become cheaper over time.
Why has the mortgage risen again even with lower interest rates?
It is essential to understand how mortgage rates are determined. To do this, one must understand what 10-year Treasury bonds are.
The U.S. Treasury Department issues notes or debt obligations with maturities of two, three, five, seven, or 10 years. The yields on these Treasury notes are set at auction, and investors receive interest over time.
The yield on the 10-year Treasury is important for homebuyers because it has a strong relationship with mortgage rates.
Typically, when the yield on the 10-year Treasury rises, mortgage rates also increase. This relationship exists because 10-year Treasury notes and mortgage-backed securities typically compete for the same investors.
In other words, if the 10-year Treasury rate rises, mortgage rates also go up, making investment in mortgages still an attractive option compared to investing in Treasury bonds. Conversely, if Treasury rates fall, mortgage rates will decrease.
What will happen to mortgage rates in the last months of the year?
The good news is that trends in the yields of 10-year Treasury bonds and other economic indicators suggest that potential homebuyers are likely to enjoy relatively favorable borrowing conditions in the last months of 2024 and in 2025 — at least compared to recent years.
Source: CBS News