Mortgage Rates Dip to 7.24% as Housing Starts and Sales Stall

A small dip in rates after a hard autumn

Mortgage rates finally eased in late October. That is the most visible change in a housing market that still looks stuck. Freddie Mac's weekly survey put the average 30-year fixed rate at 7.24% for the week ending October 29, down 8 basis points from 7.32% the week before. The 15-year fixed fell to 6.60%.3 It was the second weekly decline in a row, and Freddie Mac said the 30-year rate had reached its lowest level of the month.6

The year-over-year picture is much worse. A year ago the 30-year average was 6.17%, so the current rate is 107 basis points higher, and the 15-year rate is 1.19 points higher than it was then.4 The 52-week range for the 30-year runs from 5.98% to 7.40%.3 The low came on February 26, the first reading under 6% since 2022. Rates then rose for months, passed 7% in late September and held at 7.40% in the weeks ending October 8 and October 15.7

Most coverage gives the same explanation for the run-up. Higher oil prices tied to the Iran war and a bond-market sell-off pushed borrowing costs up during the year.9 The 10-year Treasury yield, which mortgage rates follow closely, opened at 5.03% on October 29, compared with 4.11% a year earlier.4 The Federal Reserve kept its target range at 3.75% to 4.00% on October 28.8 That decision is a reminder that the Fed is not the main force on mortgage pricing right now. Long-term Treasury yields are.

Forecasts: no quick return to 6%

Forecasters do not expect much more relief soon. Mike Fratantoni, chief economist at the Mortgage Bankers Association, has said the group does not expect significant relief in mortgage rates over its forecast horizon.8 One trade publication reported that the MBA is projecting further rate increases in December and in the first quarter of 2027.23 Other outlooks expect rates to stay near 7% for most of the next two years, and the major forecasters have largely given up on a fast return to 6%.7

Daily data hint that the weekly average may be overstating rates slightly. Optimal Blue's daily 30-year benchmark was 7.15% on October 29, 9 basis points below Freddie Mac's weekly figure.3 The 10-year yield also fell to about 4.93% by October 30, from just over 5% a day earlier.8 Taken together, rates may drift a little lower in early November. That would be a modest change within a high range, not a turn in the trend.

The reports do not agree on how high rates went. TD Economics put the national 30-year average near 7.5% when it reviewed September construction data.13 Another report said rates reached 7.63% at some point in October.25 Freddie Mac's peak was 7.40%.3 The gap mostly comes from measurement: Freddie Mac's weekly survey is based on applications, while other series track daily rate locks or lender quotes. In practice, buyers have been shopping at roughly 7% to 7.5% all autumn.

Applications bounce, but demand is still far below last year

Applications rose with the lower rates. The MBA's composite index increased 3.4% in the week ending October 23. The seasonally adjusted purchase index gained 4%, and refinance applications rose 3%.21 The MBA's 30-year conforming contract rate fell to 7.37% from 7.41%, its lowest level in three weeks.22

The annual comparison is worse. Unadjusted purchase applications were 18% below the same week last year, and refinance activity was down 61%.21 MBA deputy chief economist Joel Kan said many buyers have put their plans on hold. He added that most homeowners have little reason to refinance because their existing rates are well below today's.22 FHFA data show that about half of outstanding mortgages carry rates below 4%.23 That fact explains both the weak refinance numbers and the low number of homes listed by owners who would otherwise sell.

One detail stands out. Adjustable-rate mortgages rose to 11.3% of applications, the highest share in more than a year. The 5/1 ARM contract rate was 6.41%.21 That is about 96 basis points below the fixed-rate average.26 Borrowers are giving up long-term payment certainty for a lower payment now, which signals real affordability stress. Credit-pull data point the same way: the Xactus Mortgage Intent Index rose about 2.8% on the week but was still more than 20% below a year earlier.22

Home sales near the bottom of their range

The sales data match the weak application numbers. Existing-home sales rose 1.5% in September to a seasonally adjusted annual pace of 3.99 million, 2.2% below a year earlier.41 It was the second straight month below 4 million. NAR chief economist Lawrence Yun said he would discount the monthly gain because August was revised down to 3.93 million.41 Sales also remain well below the roughly 5.2 million annual pace that has historically been typical.45

The September sales mostly reflect contracts signed before rates moved above 7%. That makes the outlook weaker than the headline number.42 Reuters reported that NAR's pending home sales measure fell to a record low in September.16 Pending sales track signed contracts, so October and November closings are likely to fall.

New-home sales were roughly flat. They ran at an annual rate of 676,000 in September, down 0.6% from August.12

Prices are still rising, but slowly

Prices are still going up even with sales this weak. The median existing-home price was $417,500 in September, up 1.3% from a year earlier. It was the 39th straight month of annual gains and the highest September median on record.41 Regional results varied. The Northeast median rose 4.7% to $523,600. The West, at $613,600, was the only region where the median fell, down 0.3%.44

The repeat-sales indexes show the same pattern. The S&P Cotality Case-Shiller national index rose 2.1% year over year in August, up from 1.9% in July. Consumer prices rose 3.4% over the same period, so home values have now fallen in inflation-adjusted terms for 15 straight months.34 Chicago led the 20 metro areas with a 6.7% gain, and Seattle fell 2.0%.34 The FHFA index rose 2.4% from a year earlier.35

The main reason this matters is the lag. Case-Shiller's August figure is a three-month average of closings, and some of those deals were signed as early as April.35 These figures mostly describe the market before rates went above 7%. That suggests the recent price strength may not last.

Inventory is building

The clearest change is in supply. Existing-home inventory reached 1.60 million in September, up 4.6% from a year earlier, or 4.8 months of supply.41 Inman reported that inventory was at its highest level since November 2019.41 Weekly data show the increase speeding up. Altos Research measured single-family inventory up 5.7% from a year earlier. Realtor.com put the increase at 7.7%, its fastest weekly growth since late January, and said the cause is slower buyer activity letting unsold listings pile up, not a surge of new sellers.27 About 20.8% of listings had a price cut.43

The market is moving toward buyers. Median time on market rose to 33 days from 31 in August, and first-time buyers made up 31% of sales.44 Calculated Risk's Bill McBride argues that rising inventory, weak demand and 30-year rates near 7.5% will slow existing-home sales and put pressure on prices.27 Based on the data above, that view is well supported.

Builders are cutting back

Homebuilders are reacting to the same conditions. Housing starts fell 5.2% in September to an annual rate of 1.221 million, well below the roughly 1.30 million economists expected. It was the third monthly decline in a row.12 Single-family starts fell 4.6% to 859,000, the lowest in a year.13 Single-family permits, which point to future construction, fell 4.0% to 845,000.11 Reuters said that was the lowest rate since March 2023.18

The monthly numbers need some caution. The Census Bureau's 90% confidence interval on the September change in starts was plus or minus 11.8 percentage points, so the decline cannot be statistically separated from zero.14 Some measures are clear, though. Completions were 14.0% below a year earlier, and starts in buildings with five or more units were down 25.9%. Both changes are larger than their margins of error.19

Financial markets responded to the bond market more than to the housing data. On October 20 the homebuilder ETF rose 2.8% on the weak report because the 10-year yield fell.14 TD Economics noted that builder sentiment in October fell to its lowest since June 2012, and it expects homebuilding to stay weak into the first half of 2027.13 The NAHB expects further production declines in 2027 as rates stay high and material costs rise.17 Reuters also reported economists' view that data-center construction for AI is making worker shortages worse.16

The takeaway

The late-October drop in rates is real, but it is not a turning point. The two weekly declines brought a small rise in applications. Every annual measure, however, from purchase demand and pending sales to construction, shows a market under pressure from 7% borrowing costs. Price gains have continued so far mainly because the price data lag. With inventory at its highest level since 2019 and buyers waiting, the coming months are likely to bring more price cuts and flat or falling prices in more metro areas. A recovery would require a sustained drop in long-term Treasury yields, not another meeting at which the Fed holds rates steady.