The average 30-year fixed mortgage rate reached 7.4% this week, according to Freddie Mac survey data through Wednesday, up from 7.28% a week earlier and the highest level in nearly three years. Other measures are higher still. Mortgage News Daily calculated 7.59% as of Wednesday, the Mortgage Bankers Association reported a 7.49% average for the week through Friday, and Zillow data showed a 7.52% rate on a 30-year purchase loan today.
The climb has been steady. Freddie Mac’s 30-year average was 6.65% in late August, which means borrowing costs have risen by roughly three-quarters of a percentage point in about seven weeks. The average crossed 7% in late September for the first time in nearly three years and has kept climbing. On a $400,000 loan, a 7.4% rate means principal and interest of roughly $2,770 a month, about $290 more than at the 6.3% level of a year ago.
Mortgage rates are following bond yields higher as investors worry about government spending, inflation tied to the Iran war, and ongoing economic growth. The 10-year Treasury yield has hovered around 5.3% this week, retreating slightly after briefly touching its highest level since 2002. That link to long-term yields explains why mortgage rates have kept rising even as expectations for another Fed hike in October have faded, since home loan costs track the bond market more closely than the Fed’s policy rate.
The housing market is showing the strain. One housing economist said the higher rates have unsettled the market, noting that pending home sales fell from a year earlier in both August and September, before rates even crossed 7%, and that sellers are cutting prices at a pace not seen in four years. Higher rates reduce what buyers can afford, which pushes sellers to lower prices to attract them, and it keeps many existing homeowners with lower-rate loans from listing at all.
Refinancing is not offering much of an escape either. Zillow data put the average 30-year refinance rate at 7.41% today and the 15-year at 6.76%, while 15-year purchase loans averaged 6.70%. For buyers weighing alternatives, a 5/1 adjustable-rate mortgage averaged 7.13%, only modestly below the 30-year fixed, which limits the appeal of taking on adjustable-rate risk.
Several upcoming data points will show whether rates are close to a peak: next week’s Freddie Mac survey, the September inflation report, and the Fed’s October 27 and 28 meeting, where futures see only a small chance of another hike.
For small and microcap investors, the mortgage market is a useful read on how long-term rates are feeding into the real economy. Housing-linked businesses, from builders and building products suppliers to real estate services and home improvement retailers, are typically among the first to feel higher borrowing costs, and smaller companies with less pricing power and more floating-rate debt feel it more acutely. Mortgage-related financial companies face the same pressure through lower loan volumes. Because long yields, not the Fed, are driving this move, relief is likely to depend on easing concerns about deficits and inflation rather than on the central bank pausing.
