Weekly Mortgage Rates Rise, But Long Term Expectations Are Lower

Though mortgage interest rates rose this past week, the relatively small increase may be a sign things are settling down. After a surprisingly strong Oct. 4 jobs report drove rates rapidly upward, interest rates are beginning to normalize. In the week ending Oct. 17, the average 30-year fixed-rate mortgage rate rose six basis points, averaging 6.46%. A basis point is one one-hundredth of a percentage point.

Mortgage interest rates in the mid-sixes don’t feel great. The current average is about half a percentage point higher than it was a month ago. But remember also that today’s interest rates are more than three-quarters of a percentage point lower than the highs we saw back in spring.

So here’s the $415,000 question — since that’s roughly the median sales price for an existing home, according to data from the National Association of Realtors. Where are mortgage interest rates headed?

Regular folks think rates will fall

Consumers are feeling darn good about where mortgage interest rates are headed. In September, the Fannie Mae Home Purchase Sentiment Index saw record levels of optimism, with 42% of consumers expecting mortgage interest rates to decline over the next 12 months.

As noted above, mortgage rates have fallen over the past six months or so. But especially for folks who aren’t rate watchers, widespread anticipation of Federal Reserve action was likely spreading the positive vibes. In September, after holding steady for more than a year, the Fed dropped its federal funds rate — the one interest rate the central bankers actually control — by 50 basis points.

The Fed finally moving into a rate-cutting cycle may have shifted consumer perceptions more than mortgage rates falling on their own. A NerdWallet survey conducted by the Harris Poll in July — when mortgage rates were already falling — found that 15% of Americans planned to purchase a home once rates go down. Coupled with likely future Fed cuts, that rate positivity could turn more homebuying hopefuls into serious shoppers.

Housing economists temper expectations

While consumer surveys don’t get into specifics, housing economists most certainly do. And while there’s a broad consensus that mortgage interest rates will trend lower throughout the next year, these are not drop-everything-and-start-house-hunting numbers.

Government-sponsored enterprise Fannie Mae, which supports the housing market by purchasing and securitizing home loans, updates its interest rate predictions monthly. As of September, Fannie Mae anticipates 30-year fixed interest rates to end this year at 6.2%. Its overall 2025 forecast currently calls for the gentlest slope, with rates falling from 6% in the first quarter to 5.7% in the fourth quarter of 2025.

Another monthly forecast comes from real estate finance industry group the Mortgage Bankers Association. The MBA’s September forecast is nearly identical to Fannie Mae’s, with rates ending 2024 at 6.2%. But the MBA predicts even less of a drop next year, with rates ending 2025 at 5.8%.

The National Association of Realtors, which is the country’s largest trade association, updates its rates forecast less frequently. But in fresh numbers from the beginning of October, NAR expects a similar trend: Rates would close this year at 6.1% and wrap up 2025 at 5.8%.

Overall, there’s consensus among both consumers and industry economists that mortgage interest rates are headed down. But a decline of roughly 10 basis points per quarter (just a tenth of a percentage point) is probably not what regular people are thinking when they say they’re expecting rates to fall. Remember, though, that even the most well-informed expert predictions are just that — predictions. We’ll all have to wait and see what actually happens.

The article Weekly Mortgage Rates Rise, But Long Term Expectations Are Lower originally appeared on NerdWallet.