If you asked someone a year ago where mortgage rates would be today, my guess is they wouldn’t say one full percentage point higher.
Yet here we are, with the 30-year fixed now almost exactly 100 basis points (1.00%) higher than it was last September.
Today, prospective home buyers are facing a rate of about 7.125%, up from 6.125% in mid-September of 2025.
Aside from throwing a wrench into any hope of a housing market revival, it has almost completely shut the door on refinances.
The big question is will it get worse from here, or are we at/near the top for mortgage rates?
Mortgage Rates Are Up One Percentage Point From Last September
A year ago, mortgage rates were actually in a pretty good place all things considered.
The 30-year fixed averaged about 6.125%, according to Mortgage News Daily.
That was about two full percentage points lower than its cycle-high of 8% seen in late 2023.
Things were looking brighter for the housing market, which had struggled mightily under the weight of significantly higher interest rates.
It seemed like the worst was behind us, that we could continue to drift even lower and get back to some sense of normal.
Mortgage rates did indeed drift lower, falling below 6% in late February of this year.
That really got everyone excited, whether it was a home buyer staring at a more palatable interest rate.
Or a recent buyer, who could finally lower their interest rate via a rate and term refinance.
But it proved to be very short-lived, with rates surging higher after the Iran conflict broke out.
Since then, there’s been lots of upward pressure on mortgage rates, so much so that they’re now a full percentage point higher than they were a year ago.
Today, a home buyer is looking at a rate of roughly 7.125% versus 6.125% last September.
Clearly that’s not good and will result in another lackluster year for home sales, with transactions still near 30-year lows.
Does It Get Worse for Mortgage Rates Before It Gets Better?
Okay. So we know mortgage rates are in a tough spot right now. That’s pretty obvious.
But they’re still about one full percentage point below those highs seen in late 2023.
So is it possible they could go back to those levels or even higher today?
You can never rule anything out, but one of the main reasons mortgage rates climbed above 8% back then was due to blown out spreads.
Because the market was essentially shocked by the end of QE and rates had risen from sub-3% to 6% in less than a year, the mortgage market wasn’t very liquid.
MBS investors were demanding a premium because there was a lot of prepayment risk (the thought the loans wouldn’t last long before being paid off).
As such, mortgage spreads were very wide, over 325 basis points (3.25% higher than the 10-year bond yield) at times.
Today, they’re largely back to normal around 200 bps or lower depending on the mortgage rate index you use.
So to get back to an 8% mortgage rate you’d need the 10-year bond yield to be a lot higher than 5%.
Really, you’d need it to be closer to 6%, which combined with a 200-bp spread would give you 8% rates.
It seems unlikely we’ll see 10-year bond yields climb that high, or even close.
There’s some argument they could be at a top, with perhaps a little more room to move higher into the low 5s, say 5.25%.
The end result would be a 30-year fixed just a little bit above where it already is, say 7.25% or 7.375%.
Either way, it’s not great, but a return to the cycle-highs seems unlikely because inflation today is being driven by global conflicts, not widespread like it was in 2022-2023.
(photo: FutUndBeidl)
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