The average interest rate for a 30-year fixed mortgage has climbed to 6.76%, its highest level in over 14 months, according to mortgage buyer Freddie Mac. This marks the third consecutive week of increases for the benchmark rate, which stood at 6.35% one year ago.
This rise in borrowing costs can add hundreds of dollars to monthly payments for homeowners, potentially reducing purchasing power for prospective buyers. Consequently, an increasing number of potential homebuyers may opt to delay their purchases, a factor contributing to persistently stagnant U.S. home sales this year.
The rate on 15-year fixed-rate mortgages, often favored by those refinancing existing loans, also saw an increase, rising to 6.09% from 6.04% last week. A year ago, this rate was 5.5%.
Mortgage rates are influenced by various economic indicators, including inflation, Federal Reserve policy decisions, and investor sentiment in the bond market. The trajectory of these rates generally follows that of the 10-year Treasury yield, which lenders use as a benchmark for pricing home loans.
Both mortgage rates and Treasury yields have seen an upward trend this year, partly attributed to geopolitical events that have driven oil prices higher and fueled inflation concerns. The 10-year Treasury yield has reached levels not seen since late 2023, following the Federal Reserve's efforts to curb high inflation that emerged post-pandemic.
As inflation remains elevated, pressure is mounting on the Federal Reserve to implement measures to reduce it. Typically, the central bank raises its key interest rate to control inflation, a move that subsequently influences broader bond market yields. Traders are currently anticipating a roughly 70% probability of the Fed raising its federal funds rate at its upcoming meeting.
While the Federal Reserve does not directly set mortgage rates, its adjustments to the short-term interest rate are closely monitored by bond investors and can indirectly impact 10-year Treasury yields. The U.S. housing market has experienced a slowdown since 2022, when mortgage rates began their ascent from historically low pandemic-era levels. Sales of previously occupied homes remained essentially flat last year, at a 30-year low, and have seen further deceleration in recent months.