After a lengthy decline precipitated by lower inflation, a cooling labor market and hints of a Federal Reserve policy change, mortgage rates appear to have bottomed out for now.

According to HousingWire‘s Mortgage Rates Center, the average 30-year conforming fixed rate dropped to 6.23% on Sept. 27. That was the lowest figure of the year, but it has increased to 6.31% as of Tuesday. And 15-year conforming fixed rates have risen from 5.58% to 5.70% during the same period.

Still, rates look more attractive today than they have for much of the year. And some people who purchased homes when rates were above 7% are now making the decision to refinance, according to newly released origination data from Optimal Blue.

Optimal Blue data for September showed that rate locks for rate-and-term refinances jumped by 49% from August and were up 644% from the historically low levels of September 2023. Cash-out refi locks rose by more modest figures of 6% month over month and 55% year over year.

Refinances now account for 32% of locked loans, up from roughly 23% a year ago, and refi production numbers are now at their highest level since January 2022. Purchase lending remains relatively subdued as locks were down 3.3% from August but up 6.1% year over year.

“Excluding April of this year, which was impacted by the timing of Easter, September marks the first month with a year-over-year (YoY) increase in purchase locks since the Fed began raising rates in Spring of 2022,” Brennan O’Connell, director of data solutions at Optimal Blue, said in a statement. ”As we move into Q4, this is a very encouraging sign that the market may have found a floor and production is on the upswing.”

The September jobs report came in hotter than expected, which dampened hopes of deeper rate cuts by the end of the year. The 254,000 jobs added last month were higher than the 12-month average of 203,000, while the July and August jobs data were revised upward by 72,000. Higher wage growth of 4% per year also served as a wet blanket.

“All of these signs point toward a successful ‘soft landing,’ but also stoke worries that inflation may not move in a straight line to the Fed’s 2% target,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association (MBA), said last week. “This report could certainly slow the expected pace of rate cuts.”

Consumer Price Index (CPI) data for September will be released Thursday by the U.S. Bureau of Labor Statistics, but the report is not expected to move the needle for mortgage rates or other financial markets. Afifa Saburi, a capital markets analyst for Veterans United Home Loans, noted in a statement that core CPI — excluding volatile food and energy prices — is forecast at 0.26%, which would be flat compared to August and up 3.2% year over year.

“It will take a lot for this week’s CPI report to move the bond market back into positive territory after the selloff due to a very strong labor market report from Friday,“ Saburi said. “The Federal Reserve has made it clear that the employment side of its dual mandate is currently the main driver of its rate path decisions, given that inflation is slowly coming down.“ 

She went on to note that mortgage rate forecasts have become less aggressive in their expectations for further cuts. The CME Group‘s FedWatch tool anticipates an 87% chance of a 25 basis-point cut at the Fed’s meeting next month, along with a 76% chance of a 25-bps cut in December.

If these cuts are realized, the federal funds rate would drop to a range of 4.25% to 4.5%. But just as the Fed’s decision to cut 50 basis points last month hasn’t created further downward movement, small cuts by the end of 2024 are unlikely to influence mortgage rates.

”Prospective buyers who are ready to purchase likely won’t see much change in interest rates for the rest of the year,” Saburi said.

BTIG analysts Eric Hagen and Jake Katsikis said they ”wouldn’t be surprised to see some lenders catch up this week” by raising rates as much as 25 bps. But they also noted positive signs for the refi market as the MBA upped its overall origination forecast for 2025. The trade group estimates that refis will account for 37% of the market next year, compared to 29% this year.

”It aligns with the pickup in search engine traffic for buzz words like ‘mortgage refi’ making 12-month highs, helping validate there’s pent-up demand to unlock savings, even if it appears relatively marginal compared to the savings picked up in the refi wave in the pandemic,” Hagen and Katsikis said in written commentary.