Mortgage Rates Today, Monday, October 12: A Little Higher

Yes, mortgage interest rates are higher today, but only by a little.

The average interest rate on a 30-year, fixed-rate mortgage rose to 7.41% APR, according to rates provided to BW by Zillow. This is four basis points higher than Friday but one basis point lower than a week ago. (See our chart below for more specifics.) A basis point is one one-hundredth of a percentage point.

If this is your first time checking in on mortgage rates in a few weeks, the numbers may seem a little shocking; this time last month, rates were below 7%. So far, rates have been significantly higher in October than they were in September.

Mortgage rates are constantly changing, since a major part of how rates are set depends on reactions to new inflation reports, job numbers, Fed meetings, global news … you name it. For example, even tiny changes in the bond market can shift mortgage pricing.

Inflation has played a key role in driving up mortgage rates over the past several months, as the Iran war intensified price pressures. The conflict directly affects a key shipping route and oil production, and that indirectly affects the prices of all sorts of goods.

That kind of inflationary environment isn’t great for bonds, and the interest rates on 30-year fixed rate mortgages are benchmarked to the yield on the 10-year Treasury note. So where bond yields go, mortgage rates go, too. (For more, here’s a much deeper dive on the bond market as it pertains to mortgage rates.)

Persistent inflation also spells trouble for the Federal Reserve. Price stability is half of the Fed’s dual mandate (maximum employment is the other half), and inflation has been running above the central bankers’ 2% target since 2021. With the conflict in Iran making already-bad inflation worse, the Fed shifted into rate-hiking mode last month.

Raising the federal funds rate, which is the short-term borrowing rate the bankers set, is the Fed’s main tool for fighting inflation. Even though the Fed doesn’t set mortgage rates, changes to the funds rate ripple out through the entire economy. So a rate hike from the Federal Reserve  — or even markets having relatively certainty that a hike is coming — can put upward pressure on mortgage rates.

Recently, it’s looked less and less likely that the Fed will touch the funds rate at its meeting later this month. We’ll get another clue this week when September’s Consumer Price Index (CPI) is released on Wednesday. This will be our first look at inflation data for September, and it’s going to get plenty of attention.

August’s Personal Consumption Expenditures Price Index (PCE), a different measure of inflation which was released Sept. 30, came in below expectations. If September CPI also shows inflation slowing, that bolsters the case that the Fed should stay in wait-and-see mode. On the other hand, if CPI comes in hot, that could counterbalance August’s PCE. That month debuted some methodology changes that were likely to depress the stats, so there’s already an alternative explanation for why those numbers came in low.

Even if the Fed takes a break from hiking the funds rate, expect mortgage rates to stay anchored above 7% for now. It would take a bigger shift, like a conclusive end to the Iran war, for rates to decisively drop.

That means if you’re home shopping now, build your budget around today’s mortgage rates — and treat any dip as a welcome bonus, not a guarantee. And if you’ve been hoping to refinance … well, patience is a virtue. 😬