Mortgage rates reached their highest level in nearly three years, climbing to 7.49% for a 30-year fixed loan.
Borrowers face the most expensive borrowing environment in almost three years as benchmark mortgage costs climb. Total mortgage application volume dropped 4.2% for the week according to the seasonally adjusted index from the Mortgage Bankers Association.
The 30-Year Fixed Mortgage Crosses the 7.4% Threshold
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less rose to 7.49% from 7.30% the previous week. Points increased to 0.84 from 0.75, including the origination fee, for loans with a 20% down payment. A separate survey from Mortgage News Daily placed the average lender rate slightly higher at 7.56%.
Freddie Mac reported that the average rate on its benchmark 30-year fixed mortgage increased to 7.4% from last week’s reading of 7.28%, compared to 6.3% a year ago.
Treasury Yields and Inflation Pressures Drive the Surge
Behind the rate increases sits a sharp climb in the 10-year U.S. Treasury yield, which lenders use to price home loans. The yield averaged 5.28% for the week, sitting 9 basis points higher than the preceding week, before reaching 5.34% early Thursday.
Realtor.com senior economist Joel Berner pointed to a wicked brew of inflation expectations, a broad bond market selloff, and rising fiscal deficits requiring new debt issuance as the primary forces pushing bond yields higher.
A wicked brew of inflation expectations, a broad bond market selloff, and rising fiscal deficits requiring new debt issuance is pushing bond yields higher, and mortgage rates are following.
Over the three months ending Wednesday, the 10-year yield registered its largest quarterly jump since 1994, spurred by inflation expectations linked to surging energy costs. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index, rose 3.4% on a year-over-year basis.
Refinancing Activity Drops While Adjustable-Rate Mortgages Hold Steady
Homeowners with existing loans at lower rates have virtually no financial incentive to change terms. Applications to refinance a home loan fell 8% for the week and stood 56% lower than the same week one year ago.
Very few homeowners have an incentive to refinance at these rates.
With rates roughly a percentage point higher than a year ago, refinance applications last week were at the lowest level since 2025 and fell to less than half of last year’s pace.
Purchase applications dropped 2% for the week and were 15% lower than the same week last year. FHA purchase applications saw the steepest drop, falling 6% as higher borrowing costs compounded existing affordability hurdles. Seeking relief from initial payments, borrowers kept the adjustable-rate mortgage share steady at 10.3% of applications.
Existing Home Sales Fall as Mortgage Rates Climb
Before mortgage rates crossed the 7% threshold, the broader housing market was already cooling under the weight of higher financing costs. Existing home sales fell 2% from July to a seasonally adjusted annual rate of 3.98 million units, according to the National Association of Realtors, marking the third straight monthly decline.
Lawrence Yun, NAR’s chief economist, noted that home sales and mortgage rates move in opposite directions, pointing to the steady upward climb in borrowing costs originating back in February. Many of the homes purchased during that period likely went under contract in June and July, when the average rate on a 30-year mortgage ranged from 6.43% to 6.66%.
Even as sales slowed, the U.S. median sales price increased 1.6% in August from a year earlier to $429,100, setting an all-time high for the month of August based on data extending back to 1999. Home prices have now risen on an annual basis for 38 months in a row.
Properties are lingering on the market longer as buyers hesitate, pushing the total number of unsold homes to 1.62 million at the end of August. That inventory level represents a 4.9-month supply at the current sales pace, marking the highest level in over 10 years and moving the market closer to a traditional balanced supply of four to six months.