By Ravi Gadasally

Mortgage rates have continued to rise since late September despite the Federal Reserve lowering its benchmark interest rate for the first time since 2020. While the increase slowed during November, economists are uncertain of the reason for the increase.

According to Zillow, the 30-year fixed-rate mortgage, the most popular home loan option, is currently hovering around a 6.24% rate. Rates for 15-year fixed-rate mortgages and VA loans have experienced slight increases, while FHA interest rates have risen more sharply. Interestingly, adjustable-rate mortgage (ARM) rates have recently been higher than fixed rates.  Refinance rates have also been elevated, with 30-year refinance rates averaging 6.35%. 

“I think the new normal is maybe 6% mortgage rate,” says Lawrence Yun, the chief economist at the National Association of Realtors to NPR. “If we are lucky, maybe we get to 5.5% mortgage rate. Or if we are unlucky, maybe the mortgage rate trends back up towards 7%.”

A costly combination of high interest rates and rising home prices have significantly decreased housing affordability, especially in Los Angeles County, where the vast majority of localities have experienced increases in home prices. “I'm glad I'm not buying a house right now,” said High school parent Mathias Dias visiting UCLA. “Whoever needs to buy a house, it's going to be complicated and all the mortgage payments are going to be substantially higher. So house affordability is going to be worse.”

Expert forecasts predict interest rates will begin to decrease in 2025, but depend on the Federal Reserve cutting interest rates further. Interest rates are high due to persistent inflation, and if inflation continues to persist, the Federal Reserve might have to maintain or increase interests, though the market views post-2020 inflation as temporary.

“If the market’s view of temporary post-2020 inflation is wrong, market interest rates will need to move higher,” according to Farmdoc Daily. “If the market’s view is correct, the Federal Reserve will begin to cut interest rates but market rates will likely fall less than the Federal Funds rate.”

Hence, a continued increase in mortgage rates is significantly reliant on persistent inflation. Some economists have also claimed President-elect Donald Trump's proposals regarding increasing tariffs and tax cuts are having an effect, though there is not yet a clear consensus on how his policies will affect the Federal Reserve's decisions to cut or increase interest rates among economists yet.

“Investors expect somewhat stronger economic growth, higher inflation, and larger deficits,” said chief economist at the Mortgage Bankers Association Mike Fratantoni in a note to clients Thursday per NBC. As a result, rates “will remain within a fairly narrow range over the next year, with mortgage rates moving higher on signs of economic strength and more stimulative fiscal or monetary policy, or lower if it’s the opposite.”

The 2024 presidential election results seem to have limited impact on the housing market so far, with about 20% of Republicans being more likely to buy a home and 24% of Democrats less likely, but among Independents 74% responded to a survey that their plans are unchanged per SF Gate.

“If the [inflation rate] goes towards 2% and less than 2% as the Fed wants then obviously fed interest rates will go down,” said Dias. “Otherwise, it's going to continue to be painful.”