Mortgage rates might move higher than two-decade peak

This past week, the 10-year Treasury yield touched levels last seen in 2007, helping to drive the 30-year fixed rate mortgage to its highest level in nearly 23 years, Freddie Mac said.

Chatter is now around mortgage rates reaching the 8% level, which last happened in August 2000, although some are still expecting them to move lower by the end of the year.

Freddie Mac's Primary Mortgage Market Survey for the week of Oct. 5 found the 30-year FRM increased 18 basis points from the previous Thursday, to 7.49%. For the same week in 2022, this was at 6.66%. The last time the 30-year FRM was this high was Dec. 8, 2000.

The 10-year yield closed Sept. 30 at 4.6%. It continued to rise even though a partial resolution of the government funding crisis was reached over the next few days. But many investors were still working through Federal Reserve sentiments of holding shorter term rates higher for longer.

That, along with shifts in inflation and the job market, "are contributing to the highest mortgage rates in a generation," said Sam Khater, Freddie Mac chief economist, in a press release. "Unsurprisingly, this is pulling back homebuyer demand."

During Oct. 3, the yield peaked at 4.81%. But it backed down over the next couple of days to 4.72% as of 11:30 a.m. on Oct. 5.

The 15-year FRM also pushed up, to 6.78% from 6.72% one week earlier, and 5.9% for the week of Oct. 6, 2022.

The Mortgage Bankers Association's Weekly Application Survey, which covers an overlapping period that ended Sept. 29, found the conforming 30-year FRM at 7.53%.

"Despite the recent jump in rates, we still anticipate that the 30-year fixed-rate mortgage will drop before the end of the year, providing some relief to prospective homebuyers heading into 2024," Bob Broeksmit, MBA president and CEO, said in a Thursday morning statement.

Meanwhile, data from the Optimal Blue product and pricing engine found the 30-year conforming mortgage averaged 7.405 on Sept. 29. It increased over the next several days and ended Oct. 4 at 7.6%.

Zillow's mortgage rate tracker put the 30-year fixed at 7.5% as of midday on Thursday, up 23 basis points from the prior week's average of 7.27%.

"The impacts of tighter credit conditions and a persistent rise in oil prices are expected to cool the labor market further and temper economic activity in the coming months," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a statement. "This week's U.S. employment and wage growth data release will likely cause large swings in mortgage rates."