Mortgage Rates Today, Thursday, October 8: Slightly Higher

Mortgage rates are slightly higher this morning as the bond market considers the Federal Reserve’s next actions.

The average interest rate on a 30-year fixed-rate mortgage has increased to 7.47% APR, according to rates provided to BW by Zillow. This is four basis points higher than yesterday and six basis points higher than a week ago. (See our chart below for more details.) A basis point is one one-hundredth of a percentage point.

While the likelihood of a Fed rate hike later this month has only slightly changed from yesterday as I write this, it could shift further. Yesterday, the Fed released minutes from its September meeting indicating that the central bankers expect an additional rate hike this year. Today, Fed governor Christopher Waller concluded some public remarks in Turkey by stating that “if the economic data continue to come in as expected,” he anticipates the need for multiple rate hikes, with the exact timing to be determined.

Although the Federal Reserve does not set mortgage rates, its actions do influence them. Changes to the federal funds rate, which the Fed adjusts, have a ripple effect throughout the entire economy. Recently, the Fed’s actions have been causing significant reactions in the bond market, which is a key driver for mortgage rates.

For more information on how this works, continue reading below the graph.

Mortgage rates are constantly changing, as they are influenced by reactions to new inflation reports, job numbers, Fed meetings, global news, and more. Even small changes in the bond market can impact mortgage pricing.

The bond market plays a significant role in determining mortgage rates. Rates on 30-year fixed-rate home loans are typically tied to the yield on the 10-year Treasury. This is because home loans are bundled into mortgage-backed securities (MBS), attracting similar investors to bonds. The 10-year note is a good indicator since most 30-year mortgages last about that long.

The bond market has been experiencing a selloff, leading to higher yields. A bond’s yield is essentially the interest rate on the bond. Unlike stocks, which have varying returns, the return on a bond is predetermined by the coupon rate set when the bond is issued.

When investors buy and sell bonds, the prices are determined by supply and demand on any given day. This also affects the bond’s yield. The yield is calculated by dividing the coupon rate by the bond’s current price. When bond prices rise, yields fall, and vice versa.

Bond yields have been increasing for various reasons, as detailed in the linked story. Since that article was written, bond yields have continued to rise. The 10-year yield is now at levels not seen since 2002.

In summary, the bond market is a major factor in the recent surge in mortgage rates. If you’re in the market for a new home, be prepared for higher rates and view any dips as a bonus. And if you’re considering refinancing, patience may be key. 😬