For the second week in a row, the average 30‑year fixed mortgage rate eased to 7.24%, yet it stays more than a percentage point higher than before the Iran war sparked a global oil shock.
Key points
- Mortgage rates fell to 7.24% but stay over 1% above pre‑Iran war levels.
- Inflation remains above the Fed’s 2% target, supporting expectations of another rate hike in December.
- The “lock‑in” effect may keep current homeowners out of the market, reducing inventory.
Freddie Mac’s latest data show the benchmark 30‑year fixed mortgage rate fell to 7.24% on Thursday, down from 7.40% two weeks earlier. While the decline offers a modest reprieve, the rate is still well above the sub‑7% range that prevailed before the Iran conflict intensified in late February.
The surge in inflation, now running at an annual 3.7% according to government figures, has kept the Federal Reserve’s policy rate elevated. After a quarter‑point hike in September – the first increase in three years – the Fed left rates unchanged in its October meeting but market pricing suggests an 85% chance of another quarter‑point rise in December, according to CME Group’s FedWatch tool.
Rates dip but remain above pre‑war norms
Higher policy rates have pushed the 10‑year Treasury yield to its highest level in nearly two decades, a key driver of mortgage pricing. Although yields have eased slightly since their September peak, they remain far above pre‑war levels, sustaining upward pressure on borrowing costs.
Analysts note a “lock‑in” effect: many existing homeowners enjoy rates far lower than today’s 7%‑plus environment, making them reluctant to sell and face a much higher mortgage on a new purchase. This dynamic, combined with elevated consumer prices, is limiting demand in the housing market.
Fed policy and Treasury yields shape borrowing costs
Each percentage‑point increase in mortgage rates can add thousands to a borrower’s annual payment, a factor that could further dampen home‑buying activity as households weigh higher financing costs against rising home prices.
Reader questions
Why are mortgage rates still high despite the recent decline?
Rates are anchored to long‑term Treasury yields, which stay elevated because inflation is running above the Fed’s target and investors demand higher returns on bonds.
What is the ‘lock‑in’ effect and how does it affect home sales?
Homeowners with lower‑rate mortgages are hesitant to sell and obtain a new, higher‑rate loan, which can limit the number of homes listed for sale.
When is the next Federal Reserve rate decision expected?
The Fed’s next meeting is scheduled for December, and market indicators suggest an 85% probability of a quarter‑point increase.
Source: abcnews.com