Updated

Updated · HousingWire · Sep 28

Mortgage Rates Hit 7.43% as Iran Conflict and Hawkish Fed Drive 10-Year Yield Higher

Updated

Updated · HousingWire · Sep 28

Mortgage Rates Hit 7.43% as Iran Conflict and Hawkish Fed Drive 10-Year Yield Higher

Q: Why are mortgage rates climbing higher even after a highly anticipated Federal Reserve rate cut?

Mortgage rates are climbing because they are driven more by long-term bond markets than by the Federal Reserve’s short-term rate cut, and that cut had already been widely priced in. The key benchmark for 30-year fixed mortgages is the 10-year Treasury yield, not the fed funds rate. In recent weeks, that yield has risen sharply as investors demanded higher returns amid worries about sticky inflation, elevated oil prices, heavy government borrowing and broader borrowing-cost pressures. When Treasury yields rise, mortgage rates usually rise with them. Economists also note that the Fed’s quarter-point cut was highly anticipated, so lenders had already incorporated much of it into mortgage pricing before the announcement. That meant the cut itself did little to push mortgage rates lower. Markets are also focused less on one Fed move and more on the expected path of inflation and rates over time. Another factor is the spread between mortgage rates and Treasury yields. Mortgage lenders package loans into mortgage-backed securities, which compete with Treasuries for investor demand. If investors want extra compensation for risk or volatility, that spread can stay wide or widen, keeping mortgage rates elevated even if the Fed eases. The result is that mortgage costs can rise despite a Fed cut. That is why the average 30-year fixed rate moved above 7%, while more borrowers shifted to adjustable-rate mortgages, which currently offer lower initial rates but carry future reset risk.

3 articles · Updated · HousingWire · Sep 28

Mortgage rates briefly touched 7.49% last week before ending at 7.43%, capping one of the wildest bond-market swings in years.
Houthi attacks on Saudi Arabia, uncertainty over Iran talks and hawkish Fed speeches pushed oil and Treasury yields up together, with the 10-year yield nearing levels that could make 8% mortgages a base case.
Mortgage spreads stayed relatively contained at 1.98%, helping keep rates below 8%; at the worst spread levels seen in 2023, the same market would imply 8.58% mortgages.
Housing data already showed strain: pending sales fell to 59,316 from 65,152 a year earlier, purchase applications dropped 11% year over year, and price cuts rose to 42.5% from 41.5%.
Inventory still edged up to 895,398 and new listings held at 66,907, but jobs data, inflation reports and more Fed speeches could extend volatility this week.