Mortgage rates fell this week, breaking a seven-week streak of increases.
The average rate on a 30-year fixed-rate mortgage dropped seven basis points to 7.34% APR in the week ending Oct. 15, according to rates provided to NerdWallet by Zillow. (A basis point is one one-hundredth of a percentage point.) We calculate our weekly average using daily APRs recorded over the past five shopping for a mortgage and this is a rate that you could be comfortable with, you might want to lock it in. Fannie Mae now predicts that mortgage rates will average 7.4% through the end of the year, so current rates may be hard to beat in the near future.
Fannie Mae’s higher rate predictions
On Oct. 12, Fannie Mae released new 30-year fixed-rate mortgage rate predictions that are significantly higher than previous forecasts.
Rates are now expected to average 7.4% in the fourth quarter of 2026 before climbing to 7.5% in early 2027, and could remain there for the rest of the year. The last time that annual average mortgage rates reached these heights was 26 years ago in 2000.
Just last month Fannie Mae predicted that the average 30-year mortgage rate would be 6.8% in the fourth quarter and 6.7% in 2027. For 2027 borrowers, this is a substantial difference of 80 basis points.
To put that into perspective: Without accounting for insurance or taxes, a $400,000 30-year fixed-rate mortgage at a rate of 6.7% would cost approximately $2,581 each month. When we adjust the rate to 7.5%, the monthly payment becomes $2,797 — amounting to an additional $2,592 per year, which is more than another month’s payment at the lower rate.
Will September’s inflation numbers spur the Fed into action?
While the Federal Reserve doesn’t directly set mortgage rates, it does set a target range for the rate (called the federal funds rate) that banks pay to borrow from each other overnight to fund loans like mortgages.
When inflation moves too far beyond the Fed’s goal of 2%, mortgage lenders expect that central bankers will raise the federal funds rate. Because this makes mortgages more expensive to originate, lenders proactively raise mortgage rates when they expect a Fed hike is on the horizon.
Rising oil prices sent inflation surging in September, according to the latest Consumer Price Index from the Bureau of Labor Statistics, released on Oct. 14. Inflation rose 3.7% year over year last month, with the gasoline index rocketing up 9.1%.
In the immediate aftermath of the report’s release, futures traders revised their predictions to reflect increased odds of a rate hike at the Fed’s next meeting on Oct. 27-28. By the following day, expectations had relaxed, with market analysts projecting that central bankers will vote to hold rates steady for now.
Last month, it was already a big deal when the Fed raised the overnight borrowing rate for the first time in over three years. In recent history, central bankers have preferred to take a cautious approach to monetary policy. This means waiting until they can analyze several weeks (or months) of data showing how the economy responded to the previous rate hike before making any further moves.
Back-to-back hikes would be surprising, and could be seen as too rash. Still, as of Thursday morning, traders are showing that the odds of an October rate hike are higher than they were a week ago.
What you can do about rising mortgage rates
If you’re looking to buy a home right now, don’t lose hope. We’re moving into what is traditionally a slow homebuying season, and rising mortgage rates may leave fewer buyers in the market. When there’s less competition for housing, you have more negotiating power on the sale price — which can help offset high rates somewhat.
You can also be strategic about how you use your budget and savings. If you were planning on making a larger down payment, you may want to shift some of that cash toward buying down your rate instead.
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