Mortgage Rates Hold Steady at 3-Year High as Bond Market Stabilizes

Mortgage rates held steady at a three-year high this week as the bond market stabilized, helped by an influx of investor cash from a selloff in technology and AI stocks.

The average rate on 30-year fixed home loans was unchanged at 7.40% for the week ending Oct. 15, according to Freddie Mac. For perspective, rates averaged 6.27% one year ago.

“The average 30-year fixed-rate mortgage remained unchanged this week,” says Sam Khater, Freddie Mac’s chief economist.

On Wednesday, the September Consumer Price Index (CPI) measuring overall prices over the last 12 months came in at 3.7%, up from 3.4% the previous month and higher than projected by economists.

Concerned about how inflation and subsequent rising interest rates may curtail the debt-financed buildout of AI data centers and weigh on the tech sector, investors turned to long-term Treasuries. 

As a result, the 10-year Treasury yield, which mortgage rate closely follow, shed almost 13 basis points to 5.06% in morning trading on Thursday. Bond prices and yields move inversely, so the falling yield reflects the bidding up of bond prices.

What’s more, core CPI, which excludes volatile food and energy prices, rose to 2.6% year over year, up from 2.4%, signalling that inflation pressures may be broadening beyond gas and oil, which have been driven up by the ongoing war with Iran.  

“Looking ahead, the acceleration in core CPI, a sign of sticky inflation, reinforces the case for another rate hike by December and could set the stage for additional hikes in early 2027,” says Realtor.com® economist Jiayi Xu. 

The probability of a Federal Reserve rate hike in October was at 29% early Thursday, down from 35% Wednesday but up from 22% a day earlier, according to CME FedWatch.

At this time, the odds of the Federal Open Market Committee (FOMC) keeping the federal funds rate at its current 3.75%-4% range this month is over 70%. 

“Mortgage rates are unlikely to ease anytime soon, but bringing inflation under control would pave the way for lower rates and a much-needed boost to affordability for the year ahead,” notes Xu. 

With borrowing costs hovering at three-year highs, many prospective buyers have pulled back, as evidenced by Realtor.com pending home sales plunging in September. 

Yet, Xu points out that sitting on the sidelines is not the only option. Resilient buyers willing to stick it out may be rewarded in a market where motivated sellers are increasingly willing to negotiate. 

The share of price cuts hit a four-year high in September, and the share of listings pulled from the market remained in line with a year ago, suggesting sellers are committed to getting deals across the finish line. 

“For home buyers, it is important to rate-proof their budget and ensure they are financially positioned to act when the right opportunity arises,” concludes Xu. 

This week, inventory growth accelerated to its strongest pace since February, with the number of for-sale homes jumping nearly 7% compared to a year ago.

“The pickup is not being driven by a flood of new sellers,” stresses Realtor.com senior economist Anthony Smith. “Instead, the seasonal slowdown in buyer activity is allowing unsold listings to accumulate, pushing the overall count higher.”

In fact, new listings this week plunged 5.1% year over year, the steepest drop since the winter, reflecting sellers’ withdrawal from the market in the face of rising mortgage rates. 

At the same time, the median asking price fell to $415,000, down 2.3% from the same week a year ago, marking the steepest weekly decline since late July. 

“The broader picture remains one of gradual rebalancing in favor of buyers, but the widening gap between growing inventory and falling new listing activity points to a market where homes are accumulating rather than turning over quickly,” adds Smith.

How your credit score affects your mortgage

Your credit score plays a role when you apply for a mortgage. A credit score will determine whether you qualify for a mortgage and the interest rate you’ll receive. The higher the credit score, the lower the interest rate you’ll qualify for.

The credit score you need will vary depending on the type of loan. A score of 620 is a “fair” rating. However, people applying for a Federal Housing Administration loan might be able to get approved with a credit score of 500, which is considered a low score.

Homebuyers with credit scores of 740 or higher are typically considered to be in very good standing and can usually qualify for better rates, which can reduce monthly payments.