30-Year Mortgage Rate Hits 7.28%, Highest Since November 2023, as 10-Year Treasury Yield Tops 5.3%

Since the 10-year Treasury yield began its September run, climbing more than 0.5 percentage point over the month to above 5.3%, the cost of borrowing has reset higher across the economy. The newest damage shows up in mortgages.

Freddie Mac put the average 30-year fixed rate at 7.28% as of Oct. 1, up from 7.03% a week earlier. That is the largest weekly increase in four years and the highest since November 2023. A year ago the rate was 6.34%.

The 15-year fixed rose to 6.60% from 6.42% the week before. A year ago it was 5.55%.

The bond market behind the mortgage rate

Mortgages are typically pegged to the 10-year Treasury yield. That yield hit 5.306% intraday on Sept. 30 and closed at 5.292%, the highest close in roughly two decades. The 30-year yield reached 5.652% intraday, and the policy-sensitive 2-year stood at 4.899%.

The 10-year briefly topped 5.3% again on Oct. 1 before easing to 5.2%. It closed the following Friday just below 5.2%, according to NPR.

The September move was the biggest monthly jump since 2022, the Financial Times reported on Oct. 1.

On Sept. 30, inflation data came in softer than expected. The Commerce Department reported August PCE inflation at 3.4% year over year against a 3.7% consensus. Core PCE came in at 3.0% against 3.3% expected.

CME FedWatch odds of an October Fed rate hike fell from about 51% to about 37% intraday. Yields rose anyway. The same day, second-quarter GDP growth was revised up to 2.2% annualized from 1.5%, and September ADP private payrolls rose 90,000 against a 68,000 consensus. Stocks finished mixed: the Dow fell 443.87 points, or 0.86%, to 50,906.05, and the S&P 500 slipped 0.25% to 7,651.54. The Nasdaq gained 0.24% to 26,861.06.

Forced sellers are making it worse

The numbers point to more than a reaction to economic data. Matthew Scott, head of global trading at AllianceBernstein, said hedge funds and real estate investment trusts were among the investors recently forced to dump long-dated Treasuries.

The mortgage-bond mechanism runs like this. When rates rise, homeowners have less reason to refinance or move, so mortgage-backed securities take longer to pay back principal. Holders are then more exposed to rate swings, and many sell Treasuries to cut that risk. The selling pushes yields up, which pushes mortgage rates up, which extends the bonds further.

Barclays analyst Amrut Nashikkar said leveraged funds with big Treasury futures positions are also rebalancing. JPMorgan portfolio manager Priya Misra questioned what could stop the trend and said it could last for some time. The Financial Times ran an Oct. 7 piece on how mortgage bonds can trigger a "vicious loop" for Treasury yields.

Some investors see the selloff as an entry point. Bloomingbit's analysis of the episode says new buyers can now lock in higher returns, and that short- and medium-term bonds may be the better place to do it. Bonds are working again as a diversifier against stocks.

MarketWatch's Oct. 7 coverage of the latest Fed minutes carries the headline that they show no appetite for a series of rate hikes.

A housing market already stuck

The rate jump lands on a market that was slowing. Realtor.com's Sept. 30 report found homes under contract down 4.1% from a year earlier in September, versus a 0.2% drop in August. Active listings rose 5.4% to about 1.16 million, the fastest annual growth in six months. Inventory is still 9.1% below typical pre-pandemic levels.

About 20.8% of listings had a price cut in September, the highest share for the month since 2018. NPR's Scott Horsley reported that sellers are mostly not cutting prices and that home prices have risen for more than three years. Both can hold: a fifth of listings carrying cuts is compatible with national prices still being up.

The Mortgage Bankers Association's composite application index fell 6% in the week ended Sept. 25. August home sales were the slowest in 14 months, NPR reported.

The lock-in effect keeps supply tight. About half of homeowners with a mortgage pay less than 4%, according to NPR, so many have no incentive to sell and take on a 7% loan. Anthony Smith, an economist at Realtor.com, said there is "definitely a psychological weight" once rates hit 7%, especially in fall and winter, which he called typically the best time to buy.

Realtor.com estimates a half-point swing in rates changes purchasing power by roughly $30,000 for a buyer with a $2,000 monthly principal-and-interest budget.

The rate was below 6% briefly in February, just before the Iran war began, Horsley noted. The sources do not tie the subsequent climb to any single cause.

Freddie Mac's next weekly reading is due Thursday. It will show whether the early-October Treasury pullback from 5.3% to about 5.2% has done anything for the 7.28% mark.

The BigGo summary also notes October has historically been the worst month for bonds.