Hotter-than-expected inflation, driven largely by rising energy costs, has renewed pressure on mortgage rates and increased expectations of another Fed rate hike. Rates initially climbed after the report, then eased, but remain well above last year’s levels.
The daily 30-year rate reached 7.56% after the inflation report before falling to 7.33% on Thursday. Freddie Mac’s weekly average held at 7.4%, still well above the 6.27% average from a year ago.
Fannie Mae’s revised forecast suggests rates may stay high for some time. It now expects the 30-year mortgage rate to average 7.4% in the fourth quarter and 7.5% in 2027. Just a month ago, its forecasts were 6.8% for the fourth quarter and 6.7% for 2027; before the war in Iran began, it projected an average of 6% through 2026 and 2027.
The Fed does not set mortgage rates directly, but inflation and expectations about its policy can influence borrowing costs. A possible rate hike at the Fed’s Oct. 27–28 meeting could prolong the wait for lower mortgage rates. Rising incomes and cooling home prices are helping buyers regain some purchasing power, but high borrowing costs continue to limit affordability and will continue to weigh on housing activity.
In the meantime, adjustable rate mortgages (ARMs) are becoming a more common way for buyers to manage high fixed rates, but they’re still a minority of the market, representing just 8% of mortgages so far this year.
