Mortgage rates have had a bad month. Actually, a bad three years.Â
On Nov. 7, the Federal Reserve implemented a 0.25% reduction to the federal funds rate, its second cut in over four years. Prospective homebuyers are eager for a silver lining in the housing market. But experts don't anticipate dramatically lower rates before the end of the year.Â
Following the Fed's 0.5% rate cut in September, mortgage rates went up, not down. Even though the central bank's policy decisions and economic outlook affect credit markets, the Fed doesn't directly set mortgage rates. Mortgage rates are highly volatile and respond to multiple factors, like market expectations, inflation and labor data. For example, after rates hit a two-year low in early September, a surprisingly strong employment report sent them back up close to 7%, where they remain today.Â
Extreme rate volatility due to election uncertainty made things worse. Although the presidential election outcome has now been resolved, mortgage rates took a major hit, and relief won't come overnight.Â
The long-term view for mortgage ratesÂ
In recent weeks, bond market investors have panicked over how the next administration's economic policies could increase government spending and put upward pressure on rates. Skepticism over the direction of the economy (with either candidate) is a big reason why 10-year bond yields increased last month. The 10-year Treasury bond and mortgage rates have a strong correlation and tend to move in tandem. Â
"Many conservative Wall Street players pushed the idea that President Trump would have higher deficits and higher inflation with tariffs," said Logan Mohtashami, lead analyst at HousingWire. That outlook by investors helped propel mortgage rates higher in the short term. Rising inflation could prompt the Fed to keep interest rates higher for longer, delaying additional rate cuts in 2025.Â
In the long term, however, multiple future cuts and weaker economic data should help mortgage rates fall. There tends to be a lag between when the central bank starts lowering interest rates and when mortgage rates catch a consistently downward trend, said Jeff Weniger, CFA and head of equity strategy at WisdomTree Asset Management. Mortgage rates can take two to five years to reflect the full effects of Fed cuts. Â
Experts also don't know the new "low" for mortgage rates -- it could be 5% or 4% -- but it all depends on the evolving economic outlook. Regardless, a return to the pandemic-era 2-3% rates is unlikely.Â
Read more: CNET's Weekly Mortgage Predictions
Don't wait for the lowest mortgage rateÂ
Ultimately, there's no way to predict the future of the housing market. Anything could shake up the economy, from another major crisis to a surprise uptick in inflation. Without a crystal ball, your best recourse is to keep an eye on daily mortgage rate movement.
As mortgage rates start to fall, some homebuyers will jump into the market, while others will hold out for even lower rates. Waiting too long could also be risky. Last month, mortgage rates appeared to be inching toward 6% but quickly reversed course. Now, they're close to 7% again.Â
"It's impossible to guarantee what mortgage rates will do. So you need to take advantage of the opportunities when they come," said Jeb Smith, a CNET Money expert and realtor with over 20 years of experience.
You shouldn't rush into a home purchase (even if rates are falling) if it doesn't make sense for your budget or lifestyle. Taking extra time to build your credit score and put aside cash for a bigger down payment will help you in the long run, while also helping you save money on your future mortgage.
More homebuying advice:
- Weekly Mortgage Predictions
- Forget Mortgage Rates. Americans Say They Can't Even Save for a Down Payment
- You Might Be Eager to Buy a House, but Homeowners Are Holding Tight to Their Mortgages
- Despite Lower Mortgage Rates, Another Refinancing Boom Isn't Likely. Here's Why
- The Election and Gen Z's Housing Problem
