Windermere’s Principal Economist Jeff Tucker looks at mortgage rates and the factors that have pushed them up more than a point since September.
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In this exclusive series on Inman, Windermere’s Principal Economist Jeff Tucker illuminates the latest stats, reports and numbers to know this week.
This week the numbers to know are all about mortgage rates and the factors that have pushed them back up.
Number to know: 7.25%
That’s the reading for a typical 30-year mortgage rate from Mortgage News Daily on Tuesday, Jan. 14. It is up by more than a point from its low of 6.11 percent just four months ago, in mid-September. For an $800,000 loan, that translates to $5,457 a month on principal and interest, up 12 percent from $4,853 at that lower rate four months ago.
For the proximate cause of the higher mortgage rates we can look at our second number to know right now: about 4.8 percent, which is the latest 10-year Treasury yield as of Jan. 14. Mortgage rates tend to track closely with this key benchmark long-term yield.
There is a bit of a puzzle here, though: the Federal Reserve has been cutting the Federal Funds Rate, an ultra-short-term overnight interest rate. They started with a supersized half-point cut in September and then two more quarter-point cuts.
As Torsten Slok, Chief Economist at Apollo Global Management, recently flagged in this chart, historically, 10-year Treasury yields tend to continue declining modestly after the Fed has begun cutting the short-term rate. But this time is sharply different – instead, those long-term rates have more than backtracked all the downward progress they made over the summer.
The short answer for why they’ve moved back up is that the outlooks for three factors have climbed recently: real economic growth, inflation and borrowing.
For economic growth, our next number to know is 256,000: That’s the surprisingly large number of new payroll jobs added in December, according to the latest jobs report from the Bureau of Labor Statistics. Aside from October’s hurricane-impacted report, that makes three surprisingly strong months of job gains to close out 2024.
For inflation, our final numbers to know are 2.7 percent and 3.8 percent; those are the year-over-year inflation rate of the consumer price index, and the latest monthly growth rate compounded out to an annualized rate. Both are running hotter than the Fed’s target of 2 percent.
Combined with the surprisingly resilient labor market, these data are tamping down investors’ expectations for further rate cuts by the Fed – all of which is helping to feed into those higher Treasury yields and therefore higher mortgage rates.
Jeff Tucker is the Principal Economist for Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.