The average 30-year fixed mortgage rate in the US fell from 6.72% to 6.63% this week, a drop of 9 basis points. At the same time, the 10-year yield decreased from 4.38% to 4.23%, a drop of 15 basis points. In 2021, the mortgage rate was at a low of 2.65%, which meant a monthly payment of $402.69. By October 2023, the rate peaked at 7.79%, leading to a monthly payment of $718.19.

Current Rate Impact

With the current rate now at 6.63%, the monthly payment would be $641.16. This is an increase of 59% ($238.47) compared to the low in 2021. If the rate had stayed at its peak, the payment would have been $315.50 higher than the 2021 low, reflecting a 78.4% increase. At 6.63%, the difference remains significant at $238 per $100,000 compared to the lowest rate. Since the median sales price of existing homes in the US is $435,000, this results in a monthly payment increase of $1,037.35, indicating a major cost rise. The recent drop in mortgage rates, correlated with the 10-year Treasury yield, is a trend we are tracking. For derivative traders, this suggests that the peak in interest rates from late 2023 is likely in the past. The focus now is on positioning for future, albeit slow, declines in long-term rates. This trend appears related to recent economic data, which has shown consistent cooling. July’s Consumer Price Index (CPI) came in at 2.8%, marking a third month of decline and supporting the disinflation narrative. As a result, we are looking to take long positions in 10-year Treasury note (ZN) futures, since falling yields lead to rising bond prices.

Options and Market Volatility

Options on Treasury futures provide a defined-risk approach to capitalize on this trend, especially by buying call options to benefit if yields keep dropping toward 4.00%. However, we need to monitor the MOVE index, which tracks bond market volatility. Unexpected economic data could lead to unpredictable market swings, so a steady decline in rates is the best scenario for this strategy. Although housing affordability is still a major challenge, with the median monthly payment over $1,000 higher than the 2021 low, any improvements can help. Some traders are using call options on homebuilder ETFs like XHB to speculate on rising sentiment. Despite July 2025 reports showing existing home sales down 4.2% year-over-year, lower financing costs might unlock some pent-up demand. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now