Average Interest Rate

The average 30-year fixed rate mortgage (FRM) rate continued to increase in the week ending October 29, 2021, now at 3.14%. The average 15-year FRM rate also increased to 2.37%. FRM rates recently rose from the record lows reached through the Federal Reserve’s (the Fed’s) efforts to stimulate lending during the 2020 recession.

The Fed intends to keep their benchmark interest rate near zero through at least 2023, but mortgage rates have risen from the historic lows of 2020 as bond market investors demand higher yields in the face of the coming bond taper. The positive impacts of the government’s stimulus injections in the face of 2020’s historic job losses have now come to an end. Further, with the recent end to the foreclosure moratorium and the expectation for reduced mortgage-backed bond (MBB) purchases, government support for the housing market is over.

FRM rates are closely tied to the bond market, tending to move in tandem with the 10-year Treasury Note (T-Note) rate. In 2020, the expectation of a decline in business activity led bond market investors to seek the safety of Treasuries, pushing the 10-year T-Note to a new low. It has since rebounded to 1.57% as of October 29, 2021. Now, the only player to keep interest rates near the historic lows of 2020 will be the Fed, with its MBB purchases. However, as the Fed plans their bond taper heading into 2022, expect interest rates to continue to rise in the months ahead.

The spread between the 10-year T-Note and 30-year FRM rate is 1.57% as of October 29, 2021, just above the historical rate of 1.5%. The higher margins seen through much of 2018-2020 signify that mortgage lenders had been padding their risk premiums on top of restricting mortgage credit. This spread has since shrunk, indicating lenders are unable to drop their mortgage rates much further without additional Fed intervention.