What could impact mortgage interest rates this fall?

Mortgage interest rates have been on the move lately, with some good news for borrowers. The Federal Reserve’s first rate cut of the year on September 18 has started to push mortgage interest rates down. This change has given hope to many potential homebuyers who’ve been waiting for better rates.

While the Fed’s decision can shape mortgage rates, they’re not the only factor at play. Other elements may cause rates to rise or fall, sometimes in ways we don’t expect. Understanding them can help you decide when to buy a home.

We talked to three mortgage loan officers to get their takes on what could impact rates this fall. Below, we gathered what they had to say and what it could mean for your homebuying plans.

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What factors could impact mortgage interest rates this fall?

If you’re considering a mortgage this fall, experts say these factors could influence your rate:

Economic indicators

The job market and consumer spending are key players to watch if you’re tracking mortgage rates.

Dean Rathbun, a mortgage loan officer at United American Mortgage Company, explains the connection: “Consumer spending is still keeping interest rates higher. If we [start to] see a slowdown in job markets and [rising unemployment, spending will drop].” 

This spending decrease could lead to lower mortgage rates as the demand for home loans goes down.

On the other hand, when employment numbers are strong, it often leads to increased consumer spending. Joel Berman, a senior loan officer at Synergy One Lending, points out that this uptick in spending can drive inflation upward. This typically results in higher mortgage interest rates.

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Federal Reserve action

While the Federal Reserve doesn’t directly set mortgage rates, its actions still carry significant weight.

According to Berman, when the Fed adjusts the money supply or takes steps to manage inflation, it can have ripple effects on mortgage interest rates over time. The recent half-point rate cut in the Fed funds rate is a prime example, potentially signaling lower mortgage rates to come.

Looking ahead, mortgage experts are optimistic. 

Josh Green, a mortgage loan officer at Barrett Financial Group, predicts confidently, “We’ll see more cuts in November and December. Mortgage rates [will likely] keep dropping through the rest of 2024 and into 2025.”

However, he cautions there’s a wild card: inflation. If it spikes again, “the Fed will be in a tough spot and likely have to pause [further] rate cuts,” Green says.

Global events

Rathbun advises watching world events, as it might give you clues about where mortgage rates are heading. Geopolitical tensions could cause money to move to U.S. Treasury bonds as a safe move for investors.

When investors buy more Treasury bonds, their yields typically fall. Lenders often use these Treasury rates as a benchmark for setting mortgage rates. Mortgage rates tend to follow suit when Treasury rates drop due to global events — potentially making borrowing more affordable.

Government debt

Government debt often pushes mortgage rates higher even when other factors hint they should fall.

Green sheds light on this complex issue: “The U.S. keeps issuing bonds to fund itself, and all those bonds flood the market.” This oversupply of government bonds drives up their yields, which in turn, keeps mortgage rates elevated.

Typically, “mortgage rates have hovered around 1.5% to 2% above the 10-year Treasury note,” he says. But the current glut of government debt has widened this gap beyond historical norms.

Green describes it as a classic supply and demand problem: too many bonds, not enough buyers. This imbalance is a key reason why mortgage rates aren’t tracking as closely to the 10-year Treasury as they have in the past.

The bottom line

While these factors — economic indicators, Fed actions, global events and government debt — all influence mortgage rates, there’s more to homebuying than securing the lowest interest rate. Current housing market trends are also worth considering.

Rathbun advises against waiting for mortgage rates to fall because “we have a very low amount of home inventory on the market for sale.” This environment can affect both prices and buying opportunities.

Despite these challenges, he emphasizes the long-term benefits of homeownership: “[It provides] security for your family [and the] potential for long-term appreciation, which is the largest wealth-building tool for [most] households.”

He also reminds us that buying a home at today’s rates doesn’t have to be a one-time financial decision. If rates drop in the future, refinancing could be an option to lower your monthly housing costs.

If you’re mulling over a home purchase, your next step is to speak with several lenders. They can help you understand your options, assess your financial readiness and navigate the complex factors influencing today’s mortgage market.

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