Buyers should keep an eye on the possibility of rate cuts in the next few months. Tharon Green/CNET
After the rate on a 30-year fixed mortgage dipped to around 6.7% (its lowest level in months), prospective homebuyers jumped to take advantage. Before the July 4 holiday weekend, mortgage loan applications increased 9.4% week over week, per the Mortgage Bankers Association. Homeowners also seized on refinancing, with refinance activity 56% higher than the same time last year.
But the reprieve didn't last long. On Monday, average 30-year fixed rates were back around 6.76%, according to Bankrate data.
The culprit was last month's stronger-than-expected jobs report, released July 3, which sent bond yields up. Since the 30-year mortgage rate closely tracks the 10-year Treasury yield, rising bond yields translate to higher rates for home loans. Last month's surprisingly low unemployment rate also reduced the probability of an interest rate cut by the Federal Reserve this summer.
"The headline labor market data isn't crashing and burning, which likely gives the Fed some cover to hold rates where they are," said Alex Thomas, senior analyst at John Burns Research and Consulting. While the Fed doesn't have direct control over the mortgage market, its monetary policy guides mortgage lenders and the general direction of interest rates.
Experts say average 30-year fixed mortgage rates are likely to stay above 6.5% in the coming months, with a potential for small and temporary dips, not substantial drops. Prospective homebuyers are also contending with a long-standing housing shortage, high home prices and a loss of purchasing power.
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What's driving mortgage interest rates this week?
Mortgage rates, which are sensitive to investor speculation and economic data, have been affected by the Trump administration's tax cuts and tariff policies. If tariffs end up raising prices as expected, that would send an even clearer "wait and see" signal to central bank policymakers, whose primary task is keeping both inflation and unemployment in check.
"Increased uncertainty about the inflation picture lessens the chances of a cut in rates by the Fed," said Keith Gumbinger, vice president at HSH.com. "Greater inflation would argue against cutting rates, absent any significant deterioration in labor conditions."
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