Watch spreads, not the Fed, for mortgage rate shifts

Expert Quote: "It's been a while since the Fed was the main character in the mortgage rates narrative." — Kate Wood, Lending Expert, NerdWallet Supporting Data: A 225 basis point spread currently separating Treasurys and mortgages. Overview bullets generated by AI with editorial review.

Processing Content Investors' concerns over whether artificial intelligence companies will be able to handle their debt loads helped to push the 10-year Treasury yield back under the 5% floor this past week. This reduction helped the average for the 30-year fixed rate mortgage fall by 8 basis points for a second consecutive week , Freddie Mac said.

But the 10-year Treasury still remains close to 5%, making mortgage industry observers wary about its effect on long-term rates, even with the Federal Open Market Committee's decision to stand pat on Wednesday. "We often see more movement from mortgage rates in anticipation of Federal Reserve meetings than we do once the decisions are actually announced, and with this widely expected pause we didn't even see that," said Kate Wood, NerdWallet's lending expert.

"It's been a while since the Fed was the main character in the mortgage rates narrative." If anything, it is the market reaction to what is happening with the AI companies, putting money into Treasurys even with higher inflation, that has been driving mortgage rates lower, Wood said.

Mortgage rates this week The 30-year FRM averaged 7.24% for Oct. 29, the Freddie Mac Primary Mortgage Market Survey reported. This is down from last week's 7.32%.

However, a year ago, this product averaged 6.17% or 108 basis points lower than the current rate. For this week, the 15-year FRM averaged 6.6%, also a decline of 8 basis points from the Oct. 22 PMMS.

For the same week in 2025 it averaged 5.41%. "The average 30-year fixed-rate mortgage declined again this week, reaching its lowest level this month and modestly boosting purchasing power for prospective buyers," said Sam Khater, Freddie Mac's chief economist, in a press release. Lender Price data posted on the National Mortgage News website on Thursday morning had the 30-year FRM at 7.55%, more than 20 basis points lower than a week ago, reflecting the changed Treasury environment.

The 10-year was 4.98% as of 11 a.m. Last Thursday, the 10-year closed at 4.95% after ending the previous day at 5.15%. Still, most observers are holding to their views for rates to stay above 7% for at least the next two months, if not beyond.

How originators viewed the FOMC announcement "Higher for longer isn't a forecast anymore, it's the environment," said Hector Amendola, the president of SimplyPMG. "I don't know where rates go and I won't pretend to." The supply of homes for sale is better now than a year ago and based on what he is seeing in his own pipeline, sellers are more willing to make concessions.

"Buyers doing well right now stopped watching the announcement and started working on the long game and focusing on what they qualify for today," Amendola said. In a statement issued after the Fed decision but before this morning's Personal Consumption Expenditures index release , Melissa Cohn, regional vice president at William Raveis Mortgage said the FOMC is "very likely" to hike at its December meeting if inflation hasn't improved.

"We can hope that the markets remain stable and last week's rate improvements hold," Cohn continued. "Where mortgage rates go next will largely depend on oil prices and the war in Iran." In the opinion of mortgage and structured credit investment strategy company Dundon E1, the most important development for mortgage rates is the guidance the FOMC issued with the decision, said Victor Baev, its chief investment officer, on Wednesday.

"Two members of the committee voted in favor of another increase, and the statement kept the possibility of a further hike at the December meeting on the table," Baev said. "That tells the bond market that short-term rates are likely to remain at or above current levels for an extended period." This likelihood is already priced into the 10-year, one of the mechanisms used to set mortgage rates, he said.

Mostly agreeing with Cohn, Baev said inflation is what home buyers have to look at, not what the Fed does at any individual meeting. "The 30-year fixed rate has risen roughly 70 basis points since late August as the market adjusted to the September increase, and last week's reading represented the first weekly decline in two months," Baev noted.

"Until the inflation numbers show clearer progress toward the Fed's 2% target, we would expect the weekly survey to remain in the low 7% range." From Wood's perspective, "If it looks like December won't be the last, that could change the outlook on inflation. But whether that puts upward pressure on mortgage rates may depend on which investors fear more: Inflation eroding the value of bonds or inflation making it less likely AI investments will pay off." Just shy of 80% of the traders on CME FedWatch are expecting a 25 basis point hike at the December meeting.

The current Treasury-to-mortgage spread is 225 basis points, the widest in a year and above the historical norm of 150 basis points to 200 basis points. If the spreads do return to their normal levels, "mortgage rates could decline even while the Federal Reserve holds its policy rate steady, and as investors in these markets, that is the dynamic we are watching most closely," Baev said.

The tradeoff between rates and rising home prices Zillow Home Loans' current forecast is for the 30-year to remain above 7% this year, but to be at 6.5% or higher in 2027, said Kara Ng, senior economist. "For a buyer who has decided to purchase a home, but is questioning when, here is the tradeoff," Ng said.

"Borrowing costs are expected to ease, but only slightly. Home values, meanwhile, are expected to rise modestly nationwide, offsetting some of the savings from lower rates." Her advice: buy now, as waiting a year would only reduce the monthly mortgage payment by $26. If anything, the Mortgage Bankers Association's Purchase Applications Payment Index rose $53 in September from August to $2,215.

"Despite a slight decline in the median loan amount, higher mortgage rates drove monthly payments upward, with affordability deteriorating in 39 states" said Edward Seiler, MBA's associate vice president of housing economics and executive director of the Research Institute for Housing America.

"Compared to a year ago, mortgage payments are up more than 7%, outpacing earnings growth and adding to the affordability challenges facing prospective homebuyers." The MBA does not expect any significant mortgage rate relief over its housing forecast timeline, said Mike Fratantoni, chief economist.

"Mortgage rates now at three-year highs are causing a sharp slowdown in home sales, mortgage originations, and in commercial real estate markets," Fratantoni said. "Although the Fed did not increase short-term rates, the market has already priced in at least another couple of hikes over the near term, in line with MBA's forecast." No October Fed increase as 'a dangerous gamble' for mortgages The Fed decision to hold is a "dangerous gamble," for both the U.S. economy and mortgages, said Nigel Green, CEO of the deVere Group, in his commentary.

He pointed to the Fed's slow reaction to inflation in 2021, not moving until March 2022. "The Fed was asleep at the wheel, and families paid for it at the checkout, at the pump and on their mortgages," said Green. Those same warnings signs are flashing again, noting the 10-year's current status, plus the 7.4% 30-year FRM Freddie Mac reported two weeks ago.

"If the Fed won't tighten, bond investors will do it for them, and they're far less gentle," he said. The market expects a tighter FOMC monetary policy in the future, "propping up mortgage rates above 7% for the near term," said Eric Orenstein, Fitch Ratings senior director. "We expect the smaller origination market in 2027 to limit earnings upside for mortgage companies." Originations Editor Brad Finkelstein is the originations editor of National Mortgage News.

While he covers the entire process, Brad's specialty is loan production and... Read full bio