Potential homebuyers who were anticipating a further reduction in mortgage rates were met with disappointing news on Thursday. According to Freddie Mac, a provider of mortgage financing, the average interest rate for a conventional 30-year fixed-rate mortgage climbed to 6.32% as of October 10th. This marked the most significant weekly increase in mortgage rates since April and followed a second consecutive week of rate hikes after they had previously dropped to a two-year low last month. Despite a downward trend since the spring, the Federal Reserve's interest rate cut last month had raised expectations that mortgage rates would continue to decline. However, a stronger job report than anticipated last week led to a surge in bond yields, which are closely correlated with mortgage rates as they follow the 10-year Treasury yield.

Sam Khater, Freddie Mac's chief economist, commented, "It's important to note that the increase in rates is primarily attributed to changes in expectations rather than the fundamentals of the economy, which have remained robust for much of the year. While higher rates can pose affordability challenges, they also reflect the economic strength that is expected to bolster the housing market's recovery."

Last month, the Fed implemented its first interest rate reduction since the onset of the Covid-19 pandemic in 2020, hinting at further cuts to come. Shortly thereafter, the average rate for a 30-year fixed mortgage dipped to its lowest point since September 2022, at 6.08%. The recent uptick in mortgage rates highlights the inconsistent journey towards more affordable housing. Many U.S. markets continue to grapple with a scarcity of homes, intensifying competition and propelling home prices close to record highs. Although current mortgage rates are higher than any seen between 2008 and 2022, they are considerably lower than the two-decade peak of 7.79% reached in the fall of last year.

A separate report from the Mortgage Bankers Association on Wednesday indicated that the recent increase in mortgage rates has subdued housing demand. According to the report, mortgage applications decreased by 5.1% for the week ending October 4th, with declines observed in both refinancing and purchase applications. If forthcoming economic reports are less optimistic, suggesting that the Fed may lower rates further, mortgage rates could once again trend downward.

Economists at Wells Fargo predict that the average 30-year fixed mortgage rate will drop to 5.5% by the end of 2025. Lisa Sturtevant, chief economist at Bright MLS, stated, "We should anticipate fluctuations in mortgage rates throughout the fall. In this unpredictable economy, nothing is certain. Continued robust job growth or a reversal in inflation trends could lead to a change in the trajectory of mortgage rates."