The 10-year Treasury note yield is the best indicator for where mortgage rates are moving. Right now, it might be best to just not look. In the second to last week of October the 10-year yield eclipsed the 4% mark and was well above that at the start of trading on Oct. 21 (4.284%). Economic data continues to point toward a true recession and investors have their eyes on an all-but-guaranteed 75 basis point federal funds rate hike from the Federal Reserve. Keep in mind the U.S. economy has been in a technical recession this year after seeing two consecutive quarters of negative gross domestic product growth.

Philadelphia Fed President Patrick Harker, who is not a voting member of the Federal Open Market Committee which sets the federal funds rate, said in a recent speech "We are going to keep raising rates for a while. Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year." 

Harker went on to say, "Sometime next year, we are going to stop hiking rates. At that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work. It will take a while for the higher cost of capital to work its way through the economy. After that, if we have to, we can tighten further, based on the data."

Currently, the federal funds rate is in a range of 3.00%-3.75% after three consecutive 75 basis point rate hikes over the last few months. The FOMC meets again in the first week of November. 

Mortgage rates have unfortunately continued to climb at a rapid pace as the economy works itself out of the COVID-19 pandemic era of quantitative easing. The latest 30-year fixed-rate mortgage average from Freddie Mac came in at 6.94%. The last time rates averaged above 6% was in 2008 and the last time they were hovering around the 6.9% mark was 2002. 

Freddie Mac's analysts said in their weekly report that, "The 30-year fixed-rate mortgage continues to remain just shy of seven percent and is adversely impacting the housing market in the form of declining demand. Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down."

Freddie Mac is referencing the latest data from the Census Bureau which shows the number of housing starts for new single-family homes fell to its lowest level in two years. Permits for new homes also fell to its lowest level in two years. Homebuilder confidence, as reported by the National Association of Home Builders and Wells Fargo Housing Index, fell 8 points from September to October coming in at 38 for the month. Anything below 50 is considered negative and this is the lowest the reading has been since 2012 (there was a brief exception at the start of the pandemic). 

It's a sort of catch 22 for home builders as rapidly rising rates are decreasing demand just as supply chain issues are starting to clear up because of, you guessed it, decreasing demand. Companies are responding to inflation by ordering less goods which is helping ease supply channels, according to logistics platform Container xChange. The Drewery composite World Container Index showed the cost per 40-foot container is down 64% from September a year ago. 

So not only are new homes not being built, which would help ease inventory, existing homes are also not going up for sale. The National Association of Realtors shows sales of existing homes were down 1.5% from August to September and down 23.8% year-over-year. Again, with the exception of the pandemic, this is the slowest pace of sales since 2012. Inventory is still struggling to recover with just a 3.2 month supply.