The average rate on a 30-year fixed mortgage eased to 7.2% in the week to 29 October, according to Freddie Mac's survey data compiled through FRED, down from 7.3% the week before. That is still far above the 6.2% recorded exactly a year earlier, which means anyone taking out a new 30-year loan today pays meaningfully more for the same amount borrowed than they would have in late October last year.
Why it moves with the 10-year Treasury
Lenders price 30-year fixed mortgages off the 10-year Treasury yield rather than the Fed's overnight rate, because the note's maturity more closely matches the effective life of a mortgage once refinancing and prepayment are factored in. The Federal Reserve, meanwhile, held its federal funds target at an upper bound of 4.0% for a third straight reading, unchanged from the year-earlier level. Inflation has been pushing the other way: consumer prices rose 3.7% year-on-year in September, up from 3.4% in August and from 3.0% a year earlier, which keeps pressure on long-term yields even while the Fed's policy rate stands still.
There is more than one way to read the week's small dip in yields. It could reflect growing confidence that inflation will cool from here, consistent with the Fed holding steady. It could equally reflect softer growth expectations creeping into the bond market, since the drop in the 10-year yield came in the same stretch that CPI accelerated rather than slowed. The data available do not distinguish between the two.
What it means for buyers and homeowners
A household shopping for a mortgage today faces a materially higher borrowing cost than one that locked in a rate twelve months ago, when the average 30-year loan carried 6.2% rather than 7.2%. For homeowners who already hold a loan written at or below that lower level, refinancing into today's market would raise their monthly payment, not lower it, so there is little reason to do so unless they need to extract cash or restructure other debt. That is the lock-in effect: owners sit on mortgages priced well below what is available now, which removes much of the incentive to sell and move, since a move means trading a cheap loan for a more expensive one. The effect runs the other way for new entrants. Anyone buying for the first time, or trading up without an existing low rate to protect, absorbs the full 7.2% cost of borrowing at today's rate.
| Indicator | Latest reading | Previous reading | A year earlier |
|---|---|---|---|
| 30-year fixed mortgage rate | 7.2% (29 Oct) | 7.3% (22 Oct) | 6.2% |
| 10-year Treasury yield | 5.0% (29 Oct) | 5.1% (28 Oct) | 4.1% |
| Fed funds target, upper bound | 4.0% (31 Oct) | 4.0% (30 Oct) | 4.0% |
| CPI inflation, year-on-year | 3.7% (Sept) | 3.4% (Aug) | 3.0% |
What it means for value
Mortgage borrowers are not the only ones exposed to where long-term yields settle. In our discounted cash flow models, the companies most sensitive to the discount rate tend to be those with heavy fixed assets and long-dated contracted cash flows, a profile shared by regulated and merchant power generators. A one-percentage-point rise in the discount rate used in our model cuts the modelled value of Public Service Enterprise Group (PEG) by 55.4%, NRG Energy (NRG) by 47.5%, and Constellation Energy (CEG) by 41.4%. Those three figures describe how sensitive each company's modelled value is to a change in the discount rate assumption; they say nothing about how likely such a move is, and they are not predictions of where either company's shares will trade. Full detail on Public Service Enterprise Group's company page covers the underlying cash flow assumptions behind that figure. These are model values under stated assumptions, not a comparison with the share price.
What it means for savers and borrowers
Savers holding cash in accounts tied to the federal funds rate see little change for now: that benchmark's upper bound has sat at 4.0% for three consecutive readings, the same level as a year ago. With consumer prices running at 3.7% year-on-year in September, up from 3.4% in August, the real return on cash earning a fixed nominal yield has narrowed over the past two months. Borrowers with debt priced off the fed funds rate, such as some lines of credit, face no near-term change in that specific cost given the unchanged target. Anyone pricing a new fixed mortgage, however, continues to face the 7.2% average rate described above, a figure set in the Treasury market rather than by the Fed's policy decision.
What to watch next
Each will give a fresh read on whether the inflation and growth pressures behind the current level of long-term yields are building or easing.