Mortgage rates increase despite Fed cuts
In this DML Report…
Mortgage rates on the benchmark 30-year fixed loan climbed to 6.34 percent for the second straight week, up from 6.3 percent the prior week, even as the Federal Reserve cut its benchmark federal funds rate by 25 basis points on September 17, 2025—the first reduction since December 2024. This uptick occurred despite a year-over-year rate of 6.12 percent recorded in the same period last year, according to Freddie Mac's Primary Mortgage Market Survey. The increase stems from market forces that extend beyond the Fed's actions, including fluctuations in the 10-year Treasury yield, prices of mortgage-backed securities, inflation levels, government policies, and global events. The Fed's cautious post-cut messaging, which avoided outlining a clear path for additional reductions in 2025, prompted investors to adjust expectations, driving yields and rates higher after an initial pre-announcement dip.
Hannah Jones, senior economic research analyst at Realtor.com, explained that mortgage rates track the 10-year Treasury yield in real time, responding to new economic data and market outlooks.
"Investors had been hoping for stronger guidance on additional cuts in 2025, and the gap between those expectations and the Fed’s cautious messaging pushed the 10-year Treasury yield, and with it, mortgage rates, higher," Jones said.
Yields had fallen ahead of the Fed's announcement as markets priced in the cut, temporarily lowering mortgage rates, but the absence of signals for further easing led to a reversal. Jiayi Xu, senior economist at Realtor.com, noted the added layer of uncertainty from a potential government shutdown unfolding just after the cut, the first in nine months. Individual borrower rates also hinge on credit scores, down payment sizes, debt-to-income ratios, property types, and loan selections.
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Looking ahead, rates are projected to hold in a narrow band as markets evaluate the government shutdown's fallout and broader economic signals. Xu emphasized that "the timing of this disruption is particularly sensitive," underscoring how such events can sustain elevated borrowing costs despite Fed interventions. Overall, mortgage pricing reflects a mix of macroeconomic pressures and policy nuances, not just the federal funds rate, requiring homebuyers to monitor Treasury movements closely for any relief.