Mortgage Rates Surge to Near 7%, Highest in Over 19 Months

Mortgage rates have climbed for the fourth consecutive week, reaching just below 7% for the average 30-year fixed loan, according to Freddie Mac. This marks the highest level in over 19 months, with the benchmark rate standing at 6.95%, up from 6.76% last week and 6.26% a year ago. This increase in borrowing costs can significantly raise monthly payments for homebuyers, potentially limiting their purchasing power and leading some to delay purchases.

The average rate for 15-year fixed-rate mortgages, often utilized for refinancing, also saw an increase, rising to 6.26% from 6.09% the previous week, compared to 5.41% a year ago.

These rising mortgage rates are contributing to a slowdown in the housing market, which has been struggling since 2022. Factors such as a sharp increase in home prices, a chronic shortage of homes, and years of below-average new construction have already priced many prospective buyers out of the market.

The Federal Reserve's decision on Wednesday to raise its key interest rate for the first time in three years, aimed at combating surging inflation, is expected to put further upward pressure on mortgage rates. While the central bank does not directly set mortgage rates, its monetary policy decisions influence bond market investors and the yields on Treasury securities, which lenders use to price home loans. The Fed has also indicated the possibility of additional rate hikes later this year.

"The rate hike all but guarantees that mortgage rates will remain stuck at or above the 7% threshold, which creates a psychological and financial barrier that will sharply squeeze affordability and sideline even more prospective buyers," said Lisa Sturtevant, chief economist at Bright MLS.

Mortgage rates are influenced by a combination of inflation, Federal Reserve policy, and market expectations for the economy. They generally track the 10-year Treasury yield, which has seen a significant rise since late February, breaching 5% on Monday for the first time since 2023. The yield was at 4.94% in midday trading on Thursday.