In a move that has puzzled many prospective homebuyers, the average interest rate on a 30-year fixed-rate mortgage has climbed to 6.34% this week. This increase, reported by Freddie Mac in its Primary Mortgage Market Survey, marks a rise from the previous week’s 6.3% and stands notably higher than the 6.12% average seen at this time last year. This upward trend in borrowing costs is occurring despite a recent decision by the Federal Reserve to cut its benchmark interest rate, highlighting a complex and often counterintuitive relationship between central bank policy and the housing finance market.

The disconnect stems from the fact that the Fed does not directly set mortgage rates. Instead, these rates are largely influenced by the yield on the 10-year Treasury note, which is driven by investor expectations for future economic growth and inflation. Financial markets are forward-looking, often pricing in anticipated Federal Reserve actions months in advance.

According to Kara Ng, a senior economist at Zillow Home Loans, a similar pattern emerged last September when mortgage rates hit a yearly low just as the Fed cut rates, only to begin a steady ascent afterward as the market shifted its focus to the future economic outlook.

This challenging environment for affordability is triggering a mixed response from consumers. Data from the Mortgage Bankers Association shows that refinancing activity has surged dramatically, up 80% compared to four weeks ago, as some homeowners scramble to secure rates before they potentially move higher.

However, the market for home purchases remains strained. Purchase application volume was nearly flat last week, and existing home sales data for August, released by the National Association of Realtors, indicates a slight monthly decline. Year-to-date sales are on a trajectory to hit a three-decade low, underscoring the cooling effect that persistent high mortgage rates are having on the broader real estate sector.