The average rate for a 30-year fixed-rate mortgage in the U.S. has climbed above 7% for the first time since January 2025, marking a five-week trend of increasing rates and presenting a new affordability hurdle for prospective homebuyers.
According to mortgage buyer Freddie Mac, the weekly average rate rose to 7.03% this week, up from 6.95% the previous week. This compares to an average rate of 6.30% recorded one year ago. The last time the average rate exceeded 7% was on January 16, 2025, when it stood at 7.04%.
"Crossing this mark could create a chilling effect on the market" that would lead to a considerable slowing of home sales transactions this fall, said Lisa Sturtevant, chief economist at Bright MLS. Higher mortgage rates increase monthly payments for borrowers, thereby reducing their purchasing power and potentially causing them to postpone buying a home.
Since hitting a low of 5.98% in late February, the average rate on a 30-year mortgage has increased by approximately 1 percentage point. This rise translates to an estimated additional monthly cost of $276 for a borrower financing a $400,000 home loan at the current average rate.
The housing market has faced stagnation this year, largely attributed to elevated mortgage rates, which began to climb after late February. Mortgage rates are influenced by various factors, including inflation, Federal Reserve policy, and investor expectations for the economy, generally mirroring the movement of the 10-year Treasury yield.
The 10-year Treasury yield, which had been around 3.97% in late February, surged to 5.17% by Thursday, driven by expectations of higher inflation and surging oil prices. This yield, used by lenders as a benchmark for pricing home loans, has returned to levels not seen since 2007.
"Upward mortgage rate pressure seems likely to linger," said Anthony Smith, senior economist at Realtor.com, noting the latest increase in the 10-year Treasury yield.
Adding to the upward pressure on mortgage rates, the Federal Reserve recently increased its key interest rate for the first time in three years to combat surging inflation. The central bank also signaled the possibility of further rate hikes later this year. Traders are now pricing in a significant chance of one or two additional rate increases by the end of the year, according to CME Group data.
The U.S. housing market has been in a slump since 2022, when mortgage rates began their ascent from pandemic-era lows. Sales of previously occupied homes were largely flat last year, reaching a 30-year low, and experienced another slowdown last month.
Applications for mortgage loans, encompassing both home purchases and refinances, decreased by 1.5% last week compared to the prior week, marking the third consecutive weekly decline, according to the Mortgage Bankers Association. Refinance applications fell to their slowest pace since February 2025.
The rise in mortgage rates is also leading more potential buyers to consider adjustable-rate mortgages (ARMs), which typically offer lower initial rates. ARMs accounted for nearly 10% of all mortgage applications last week.