Good Thursday morning from your Hometown Lender,
Rates seeing a bit of a save this morning, as mortgage bonds recover yesterday’s losses and the 10-yr yield falls back from closing at the highest level since September. The technicals still playing a prominent role and yesterday was a big red flag. However, this morning mortgage bonds have jumped back above the 50-day moving average and the 10yr yield dropped back down. What does all this mean for rates? Simply it is never a straight line up or down.
What’s affecting rates behind the scenes?
Traders are watching how the tariff argument plays out in the Supreme Court. When it wraps up, it could cause some more volatility in markets and therefore in mortgage rates but even if the President loses, he has several (read below) options to reinstate the tariffs.
The government shutdown has reached the point of pain as folks go unpaid, with the FAA ordering flight traffic to be cut back by 10% as flight delays and cancellations pile up a great example of how it is playing out. But will the pain transfer to the people who have the power to pass a budget (Congress)? Still a void as data goes uncollected and unpublished, part of the reason we see rates tread water.
A little higher view:
Market Analysis – Big Picture: Where Rates Sit Today
- National 30-year fixed rates are mostly in the low-6s, with daily surveys showing around 6.3–6.4%, depending on the source. Money+3The Wall Street Journal+3Yahoo Finance+3
- Freddie Mac’s latest weekly survey (through 10/30) still shows the 30-year at 6.17% and the 15-year at 5.41%. freddiemac.com
Translation:
We’re well below the 7%+ scare zone from earlier cycles, but still in a “higher than you remember, lower than you feared” band.
Under the hood:
- The 10-year Treasury, the main backbone for mortgage pricing, is trading around 4.1–4.2%, near its highest level in roughly a month after flirting with 5% earlier this fall. Trading Economics+2Reuters+2
- Spreads over Treasuries remain a bit wider than “old normal,” reflecting volatility, liquidity worries, and political risk (more on that in a second).
Market Analysis – This Week’s Economic Data: “Growth Okay, Labor Mixed, Data Foggy”
1. Services sector – still growing
Yesterday’s October ISM Services PMI came in at 52.4, the strongest reading in eight months and safely in expansion territory. New orders were especially strong at 56.2. ISM World+2Trading Economics+2
But there’s a catch:
- The employment component stayed below 50 for the fifth straight month, signaling services companies are cautious about hiring.
- Prices paid remain elevated, so the Fed still has to worry about inflation pressures.
For your clients:
The “services side” of the economy – things like health care, travel, professional services – is still chugging along, but employers are adding staff carefully, not aggressively.
2. Labor market – softening around the edges
- ADP data showed October private payrolls rebounding, but still modest and with weakness in white-collar and leisure/hospitality categories. Reuters
- A separate report showed October layoffs at the highest level for that month in over 20 years, as firms restructure and lean into AI. Reuters
- Jobless claims remain historically low (around the low-200k range in late October), suggesting no major recessionary spike in unemployment yet. Reuters+1
So the job market is moving from “red-hot” to “warm but more nervous.”
3. The Fed – one cut in the bag, but very non-committal
On October 29, the Fed:
- Cut the federal funds rate by 25 bps to 3.75–4.00%, the second cut of the year. Federal Reserve+1
- Announced it will stop shrinking its balance sheet on December 1 for Treasuries, but will keep letting MBS run off. Federal Reserve+1
- Powell made it clear that a December cut is “not a foregone conclusion”, and the committee is split. Reuters+1
For borrowers:
The Fed has taken its foot slightly off the brake, but it’s not flooring the gas. Short-term rates are easing, yet long-term rates (and mortgages) are still driven by inflation expectations, growth, and risk sentiment.
Market Analysis – Political Backdrop: Shutdown, Tariffs & Uncertainty
The ongoing federal government shutdown that began on October 1 is now in its 37th day, officially the longest in U.S. history. The Washington Post+1
Key points:
- Roughly 900,000 federal employees are furloughed and over a million working without pay; core programs continue, but many services are disrupted. Wikipedia
- Courts have just forced the administration to continue SNAP food benefits, highlighting both the legal and human stakes. Reuters
- FAA is planning to cut flight capacity by 10% at 40 busy airports due to unpaid, overworked air-traffic controllers – a visible sign of strain for travelers and the broader economy. AP News+2The Guardian+2
The ISM services survey itself notes that the shutdown and tariffs are cited as business headaches, even as many firms still report decent demand. Reuters
For rates, the shutdown is a weird combo:
- It hurts growth (CBO estimates a 1–2 percentage point hit to Q4 GDP, with some losses permanent), which should be bond-friendly. Reuters+1
- But it also raises risk premiums (dysfunctional politics, delayed data, potential credit concerns), which can push yields higher than they’d otherwise be.
Think of it as the market saying:
“Yes, growth might slow… but we still want extra compensation to own your bonds while you fight in D.C.”
Market Analysis – So Why Are Mortgage Rates Still in the Low-6s?
Despite the Fed cutting:
- 10-year Treasury yields are still elevated – around the mid-4s – because:
- Inflation is off the highs but not convincingly at 2%. NAM+1
- Services PMI and second-quarter productivity data point to an economy that’s cooling, not collapsing. ISM World+1
- The shutdown, tariffs, and political drama keep an uncertainty premium baked into long rates. Reuters+1
- Mortgage spreads over Treasuries remain wider than pre-COVID norms due to:
- Lenders are cautious:
- Rising layoffs and a messy fiscal picture make credit risk slightly more concerning, even if housing fundamentals (tight supply, decent demand) remain solid. Reuters+2Norada Real Estate+2
Net effect:
Rates have drifted down from peak levels earlier this year, but the “new normal” still starts with a 6, not a 3 or 4.
Market Analysis – Short-Term Outlook (Next 1–3 Months)
Barring a shock, the most likely path:
- Sideways to slightly lower mortgage rates:
- If the shutdown drags on and data (when we get it) confirm slower growth and soft hiring, markets will lean into more Fed cuts in 2026, supporting slightly lower long yields.
- If inflation or tariffs re-flare, the 10-year can easily stay pinned near current levels or back up.
Most forecasters now expect gradual easing in mortgage rates over 2025–26, but not a return to pre-2021 ultra-low levels. Think “5s later, not 3s again” unless we see a true recession. Forbes+1
From a practical client standpoint:
- Today’s low-6s could look decent in hindsight if the Fed turns more cautious and inflation proves sticky.
- There’s a reasonable chance we see high-5s at some point in the next 12–18 months, but with volatility and no guarantees.
Market Analysis – Bullet Points:
“We’re in a ‘high-but-not-crazy’ rate environment. The real win is structuring the loan so your payment is comfortable even if rates move slower than headlines suggest.”
“Rates today are in the low-6s.”
Not the storybook 3% days, but noticeably below recent peaks and in a zone where buying can still make sense based on payment and time horizon.
“The Fed has started cutting, but mortgages don’t follow in a straight line.”
Long-term rates care more about future inflation and growth than about one or two Fed meetings.
“Politics are adding noise.”
The record-long shutdown and tariff disputes are pushing and pulling on rates: they slow growth (downward pressure on yields) but add risk and uncertainty (upward pressure).
Lock vs float, in simple terms:
If a buyer needs certainty (new build near completion, tight DTI, emotional stress): leaning toward a lock in the current low-6s with potential refi later is reasonable.
If they’re flexible and very payment-sensitive, a short-term float could be considered, but only with eyes wide open to headline risk (shutdown deal, surprise inflation, Fed jawboning).
Strategy:
“Marry the house, date the rate – but don’t assume you’ll be able to break up quickly.”
Stay safe and make today great!