A Terrible October Spike Takes Mortgage Rates Back to 7%

Since the Fed rate cut, mortgage rates have increased in four of the last five weeks. MortgageNewsDaily.com’s (MND) daily rate survey shows that the 30-year Fixed mortgage rate is back to 7%, the highest level in four months. Take a look at the image above.

Mortgage Banker’s Association (MBA) also released their weekly application survey and reported that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.73 percent from 6.52 percent, with points increasing to 0.69 from 0.64 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

These rates are closer to Optimal Blue Mortgage Market Indices (OBMMI).

The discrepancy between the two sources can be attributed to two reasons: MBA’s survey is weekly, and the numbers are delayed, and MND’s reported rates usually carry no points, unlike MBA’s survey.

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What is causing the sudden Mortgage Rate spike?

Many homeowners and homebuyers believed that Fed rate cuts would lower mortgage rates. As I have pointed out in several commentaries before, that’s a misunderstanding, and mortgage rates do not always follow Fed rate cut trends.

The sudden jump can be linked to both objective and subjective reasons.

Objectively, key economic reports released in the last few weeks show the US economy is as strong as ever. Good news for the economy is usually bad news for mortgage rates.

On October 30th, ADP reported that private job creation totaled a stunning 233,000 jobs. It was the best month for job creation since July 2023. Today, the Commerce Department released the Gross Domestic Product (GDP) data, adjusted for inflation, expanded at a 2.8% annual rate in the 3rd quarter.

 

The strength in the third quarter was again driven by robust consumer spending, which grew at a 3.7 percent rate, adjusted for inflation. Rising wages and low unemployment meant that Americans continued to earn more.

That suggests that spending could continue to grow, especially because data released by the Conference Board this week showed consumers were finally feeling more confident in the economy.

The subjective reason for the mortgage rate spike is the presidential elections. One of the presidential candidate’s policies points toward more budget deficits, which could lead to more borrowing. This would mean the US government would have to offer a higher yield on treasuries to attract more buyers. The mortgage rates have a direct relationship with the treasury yield—the higher the yield, the higher the mortgage rates.

The only saving grace for mortgage rates in recent weeks has been cooling inflation. If that continues in future reports (one releasing this week), we might see a slight lowering of mortgage rates. That, combined with lower election anxiety, could cause the mortgage rates to trend lower in a few weeks time. Of course, several other factors, as seen in the last few weeks, can keep the mortgage rates elevated even with Fed rate cuts.

How to Track Mortgage Rates and Refinancing Opportunities?

You can track today’s mortgage rates here or complete a form to get a live rate quote customized to your mortgage situation. You can also sign up for free for our first-of-its-kind refinance alert platform by visiting – https://instarefi.com/

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