Mortgage rates were supposed to decline following the Federal Reserve’s jumbo-sized rate cut, but the complete opposite has occurred.

Since the Fed lowered interest rates by 0.5% on Sept. 18, the average 30-year fixed-rate mortgage has increased by nearly 50 basis points, according to Mortgage News Daily data.

This is further corroborated by Freddie Mac, whose data showed a modest drop in mortgage rates after the Fed’s meeting, followed by a sharp acceleration in recent weeks.

“Mortgage rates have increased since the September Fed meeting because longer-term rates have also increased, mostly as a function of markets pricing in lower recession odds, thanks to strong payroll data especially,” Carson Group macro strategist Sonu Varghese told Business Insider.

Varghese was referring to the latest nonfarm payrolls report, which showed that the U.S. economy added 254,000 workers in September as the unemployment rate fell to 4.1%.

Combined with upward revisions in second-quarter GDP, the latest data suggest the U.S. economy isn’t at risk of a recession.

A hotter economy may have thrown a wrench in the Fed’s plans to continue lowering interest rates for the rest of the year, making it harder to predict the path of mortgage rates.

Homebuyers who’ve been sidelined until mortgage rates drop now face a conundrum: keep waiting or purchase a home now before prices continue to rise.

The trouble with today’s housing market

America’s housing market has been stuck in place since the Fed began raising interest rates in 2022. Although demand for homes has declined sharply, prices continue to rise due to a lack of available inventory, especially in the resale market.

Home prices have notched multiple record highs this year, with the latest S&P Case-Shiller index showing an annual gain of 5% as of July.

The typical U.S. home is now valued at more than $426,000, according to the National Association of Realtors.

The good news for buyers is that the inventory shortage is beginning to ease as more properties go up for sale. Data from Revolut Consulting shows a sharp rise in home listings in places like Florida, Georgia, North Carolina, and even California.

According to Creditnews Research, annual housing inventories rose in September in 97 of the country’s 100 largest metros—a potential sign that house-price growth will moderate moving forward.

This is exactly what housing expert and Revolut founder Nick Gerli expects to happen.

“As inventory continues to grow, sellers will likely cut prices by more,” Gerli said.

Trends that pushed up housing prices during the boom, such as local population growth and investor demand, “are now leading to an inundation of supply as the downcycle begins,” he explained.

The final domino in the housing affordability crisis is mortgage rates. While experts generally agree that lower rates will encourage more buyers back into the market, it’s not certain that cheaper rates would improve affordability in the long run.

Telsey Advisory Group executive Joe Feldman recently told Fox Business that lower rates would only improve affordability over a three-to-six-month period. After that, lower rates will “manifest themselves into price growth and offset the decrease in mortgage payments.”

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