Mortgage Rates Soar to 3-Year High as Global Bond Market Selloff Deepens

Mortgage rates jumped to their highest level in nearly three years this week, driven by a massive global bond market selloff stemming from rising energy costs and lingering inflation fears.

The average rate on 30-year fixed home loans climbed to 7.28% mark for the week ending Oct. 1, up 25 basis points from 7.03% the previous week, according to Freddie Mac. For perspective, rates averaged 6.34% one year ago.

“With mortgage rates on their current trajectory, the housing market continues to be supported by favorable economic conditions,” says Sam Khater, Freddie Mac’s chief economist.

Last week, the average rate crossed the 7% threshold for the first time in 19 months. Thursday’s readout hits its highest level since late Nov. 2023, and marks the biggest one-week increase in more than four years.

This comes as the 10-year Treasury yield, which mortgage rates closely follow, on Thursday touched 5.34%, a level not seen since April 2002, fueled by rising oil prices from the ongoing conflict in the Middle East, expectations of growing inflation, and concerns about rising federal deficits.  

The August Personal Consumption Expenditures (PCE) inflation came in cooler than expected Wednesday, with core PCE excluding food and energy at 3% annually, down from 3.3% the prior month.

This is the Federal Reserve’s preferred inflation gauge that the central bank uses to assess progress toward its 2% annual inflation target. 

At the September meeting of the Federal Open Market Committee (FOMC), the Fed voted to raised the federal funds rate for the first time since 2023, a move intended to tamp down on inflation. 

Bond markets assess a 65% probability that the Fed will leave the benchmark rate unchanged at its present 3.75% to 4% range at the next policy meeting in late October. But all eyes are now on Friday’s jobs report for more clues about the Fed’s next move.  

For homebuyers, Realtor.com® senior economist Hannah Jones says mortgage rates would likely ease if oil prices retreat, inflation keeps cooling, or labor market data softens enough to diminish expectations for further Fed rate cuts.

“Buyers are pulling back in response to ongoing affordability challenges, while sellers are showing flexibility,” she says. 

In September, 20.8% of listings had a price cut, the highest share in four years. Inventory was just 9.1% below pre-pandemic levels, the narrowest gap yet. Even so, pending home sales fell below year-ago levels by the widest margin in eight months.

“Altogether, September’s housing data points to a market stalled by mounting affordability pressure,” says Jones. “Buyers have more options at lower price points, but elevated mortgage rates keep homeownership out of reach for many.”

The 30-year mortgage rate has risen nearly three-quarters of a percentage point over the past year, adding more than $100 to the monthly principal and interest payment on a median-priced home, even as the median asking price has fallen year over year. 

Jones maintains that in a volatile rate environment, the best thing buyers can do is rate-proof their budget. Recent research from Realtor.com shows how much mortgage rates will likely move from today’s level, allowing buyers to budget for rate volatility. 

For example, historically, rates have typically stayed within a 75 basis-point range over a six-month window. 

“Testing both the high and low ends of that range against your budget can help buyers plan for the market and approach homebuying with confidence,” notes the economist. 

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.

Different types of mortgage loan programs have their own minimum credit score requirements. Some lenders have stricter criteria when evaluating whether to approve a loan. Ultimately, they want to make sure you’re able to pay back the loan.