This week, the average long-term mortgage rate in the US climbed above 7% for the first time since January 2025, marking another affordability hurdle for potential homebuyers. After five consecutive weeks of rising rates, the 30-year fixed mortgage rate increased to 7.03%, up from 6.95% last week, according to Freddie Mac. A year ago, the average rate stood at 6.30%.
This rate is now the highest since January 16, 2025, when it was recorded at 7.04%.
“The 7% threshold isn’t just a number; it’s a substantial psychological barrier,” Lisa Sturtevant, chief economist at Bright MLS, explained. “Reaching this mark could significantly dampen market activity,” potentially leading to a noticeable decrease in home sales this fall.
Higher mortgage rates can add hundreds of dollars to monthly payments, limiting what homebuyers can afford. As rates increase, it could also prompt some shoppers to postpone their plans to buy a home.
Earlier this year, in late February, the average mortgage rate touched a low of 5.98%, a level we hadn’t seen since late 2022. The rise in rates since then—around one percentage point—translates to about an additional $276 monthly cost for someone taking out a $400,000 mortgage at the current average rate.
Of course, individual factors like income and credit can affect whether a borrower qualifies for a rate below or above this average.
Overall, the housing market has been struggling this year, largely due to increasing borrowing costs. The upward trend in mortgage rates has continued since the US and Israel’s actions against Iran in late February.
Mortgage rates are influenced by numerous elements, including inflation trends, Federal Reserve policies, and investors’ predictions regarding the economy. They generally align with the 10-year Treasury yield, which lenders reference when pricing home loans.
The expectations of rising inflation, particularly with increasing oil prices, have driven up the 10-year Treasury yield. It was sitting at 3.97% in late February but jumped to 5.17% in midday trading on Thursday—levels reminiscent of 2007.
This recent surge in the Treasury yield suggests that “increased pressure on mortgage rates is likely to persist,” said Anthony Smith, a senior economist at Realtor.com.
Last week, the Federal Reserve raised its key interest rate for the first time in three years in an effort to combat soaring inflation, which could further exert upward pressure on mortgage rates.
While the Fed doesn’t directly set mortgage rates, its adjustments to short-term rates are closely monitored by bond market investors and can end up affecting the yield on 10-year Treasuries. The Fed also indicated that another hike could be on the table later this year.
Currently, traders on Wall Street believe there’s about a 50% chance that the Fed will implement two more rate hikes before the year ends, based on CME Group data.
The housing market has been in a slump since 2022, following the rise in mortgage rates from their pandemic-era lows. Home sales of previously occupied homes in the US were virtually unchanged last year and were stuck at a 30-year low. Reports indicate that US home sales slowed again last month.
Recent data on mortgage applications reveal that the increasing rates have caused some potential buyers to hesitate.
According to the Mortgage Bankers Association, applications for mortgages—including those for home purchases or refinancing—decreased by 1.5% last week compared to the previous week, marking a third consecutive weekly decline.
Refinancing applications also fell, reaching their lowest point since February 2025.
Furthermore, the increase in rates for 15-year fixed-rate mortgages, often favored by those looking to refinance, is likely to dissuade homeowners eager to make changes. The average rate for these loans rose to 6.42% this week, up from 6.26% last week, while a year ago, it was much lower at 5.49%.
As a result of these high mortgage rates, more potential homebuyers are leaning towards adjustable-rate mortgages (ARMs), which generally offer lower initial interest rates compared to standard 30-year fixed mortgages. ARMs made up nearly 10% of all mortgage applications last week, as noted by the MBA.
