Loan interest rates below 6%? Not anytime soon.

On By Littum

It wasn’t supposed to be like that.

Realtors, mortgage brokers and economists expected a busy fall home-buying season as inventory improved and buyers – buoyed by the Federal Reserve’s jumbo rate cut – came off the sidelines to take advantage of mortgage rates at two-year lows.

But after a vanishingly short honeymoon period, rates began to rise. They have been up for five straight weeks and in recent days have trended north of 7%, a level some market watchers say will keep potential buyers on the sidelines. Home contract activity showed signs of life in September, when mortgage rates were lower, but home sales this year are on track to hit a multi-decade low.

A combination of factors has pushed mortgage rates up rapidly. Treasury yields, which mortgage rates closely track, have risen dramatically in recent weeks amid strong economic data and pre-election jitters. Economic uncertainty surrounding next week’s election could complicate their way back.

“This rise in mortgage rates over the past few weeks has probably been very surprising to Fed officials,” said Chen Zhao, who heads Redfin’s economic research team. “I think it’s been surprising to everybody.”

The Fed does not directly control mortgage rates. Instead, interest rates primarily move based on expectations about the direction of interest rates in the future. Last month, a flurry of hot economic data on nearly everything from consumer spending, inflation, wages and hiring called into question how much additional Fed easing would be needed to support the economy in the coming months.

In other words, all these positive signs for the economy are notches in the negative column for interest rates – including mortgages – falling.

Read more: How the Federal Reserve’s rate decision affects mortgage rates

At the same time, Treasury yields began a dramatic rise as traders began to price in a possible election victory for former President Donald Trump, whose proposed policies of tariffs and tax cuts are seen as bad for bonds — tariffs are generally inflationary, which would require higher interest rates, while tax cuts are likely to require the United States to issue more debt. That can drive interest rates up if there isn’t more demand to meet the increased supply.

Economic data released this week further muddied the picture. Treasury yields fell briefly on Friday morning in response to a lackluster jobs report, raising the possibility that mortgage rates would move lower in response. But the reaction was short-lived. By mid-morning they were higher again.