Mortgage rates increased for the sixth week in a row, rising 25 basis points according to the Freddie Mac Primary Mortgage Market Survey as of October 1st. This brings the 30-year fixed rate to its highest level in nearly three years. This trend is driven by two main forces. First, a bond sell-off driven by rising treasury yields, stubborn inflation, and heavy corporate borrowing. And second, macro-economic pressures due to ongoing federal debt concerns and energy-driven pricing keep upward pressure on yields.
Mortgage applications decreased 6.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending September 25th. “Mortgage rates jumped to their highest level in almost three years, pushing borrowers to the sidelines. The 30-year fixed rate increased for the sixth consecutive week to the highest rate since November 2023,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications fell by 6 percent due to the recent surge in rates, with purchase and refinance applications both declining to their slowest weekly pace since 2025” Added Kan, “ARM loans, with rates around 80 basis points lower than fixed rate loans, accounted for 10.3 percent of applications, the highest share since October 2025.”
Consumer sentiment dropped in September, close to the lowest level ever recorded in the 74-year history. Shopper attitudes soured as a month’s long bout of inflation squeezed consumers and an underlying oil supply shock showed little sign of imminent resolution. The final reading of the University of Michigan index registered at 48.1 in September, marking the second-lowest final reading ever recorded. Prices rose at an annual rate of 3.4% in August, the most recent month on record, and inflation stands more than a percentage point higher than the Federal Reserve’s target rate of 2%. Persistently elevated prices have continued to take a toll on shoppers, Fed Chair Kevin Warsh said at a press conference in Washington, D.C., last week. “The plain fact is that inflation is too high and has been for too long,” Warsh said.
However, a fresh reading on the Federal Reserve’s preferred inflation gauge released Wednesday showed prices cooled more than expected in August and is likely to quell some of the urgency for another interest rate hike next month. The Personal Consumption Expenditures index rose 3.4% in August, less than expectations for 3.7%. Excluding volatile energy and food prices, core PCE rose 3%, beating expectations for a rise of 3.3% and marking a drop from 3.3% in July. Month over month, core PCE inched down a tenth of a percentage point to 0.2% from July and beat expectations of a 0.3% rise. “Core price pressures are slightly less firm than feared and provide some support to our view that the Fed will pause in October,” said Stephen Brown, chief North America economist, for Capital Economics.
