W
hen the Federal Reserve lowers interest rates, mortgage rates often follow suit. However, recently, the opposite has occurred: mortgage rates have risen despite the Fed's rate cuts. This paradox can be attributed to the complex interplay between market data and economic factors.

    Housing Market Decoded, a resource authored by economists and experts, helps make sense of these numbers. Over the past few months, mortgage rates have increased, leaving prospective buyers frustrated and confused. The average 30-year fixed-rate mortgage rate has hit 6.93%, its highest point since early July.

    The recent upward trend in mortgage rates coincides with the Federal Open Market Committee's (FOMC) December meeting, where they cut the federal funds rate by 25 basis points. However, this move was accompanied by projections indicating heightened concern about inflation risks and a slower pace of rate-cutting activity in 2025.

    The Fed is also closely monitoring the labor market, which has been resilient with positive job numbers and low unemployment. A strong job market can lead to higher inflation as wages grow and demand increases. This, in turn, means investors will demand higher yields on longer-term bonds, such as mortgage-backed securities, resulting in higher mortgage rates for consumers.

    Prospective homebuyers and real estate professionals should keep a close eye on reports about inflation and the labor market in 2025. The Fed's statements may have more influence over markets than their actions, and forecasts suggest that mortgage rates will remain above 6% throughout the year.