The average long-term U.S. mortgage rate has risen to its highest point in nearly three years, reaching 7.28% this week, according to mortgage buyer Freddie Mac. This marks the largest weekly jump in four years and is the sixth consecutive week of increases. A year ago, the average rate stood at 6.34%.
The 15-year fixed-rate mortgage also saw an increase, rising to 6.60% from 6.42% last week, compared to 5.55% a year ago.
FILE - A home for sale in Sudbury, Mass., is shown on Sunday, Sept. 22, 2024. (AP Photo/Peter Morgan, File)
These rising borrowing costs can significantly increase monthly payments for homebuyers, potentially adding hundreds of dollars and limiting purchasing power. The current average rate on a 30-year mortgage is about 1 percentage point higher than the roughly 5.98% recorded in late February, translating to an additional monthly cost of approximately $276 for a $400,000 home loan.
The U.S. housing market has experienced a slump since 2022, largely due to elevated mortgage rates. Sales of previously occupied homes were flat last year, reaching a 30-year low. Last month, existing home sales fell 2% from July to an annual rate of 3.98 million units, their slowest pace in over a year. Mortgage applications also declined for the fourth consecutive week.
Mortgage rates are influenced by factors such as inflation, Federal Reserve policy, and bond market expectations. They generally track the 10-year Treasury yield, which has increased amid expectations of higher inflation and surging oil prices. The 10-year Treasury yield has climbed from 3.97% in late February to 5.27% as of Thursday, a level not seen since 2007.
High yields tend to slow the economy by making borrowing more expensive for everyone. In response to higher fixed rates, more prospective buyers are turning to adjustable-rate mortgages (ARMs), which typically offer lower initial interest rates. ARMs accounted for over 10% of all mortgage applications last week.