Mortgage rates in the United States have surged to their highest level in over a year, delivering another setback to an already sluggish housing market. According to data released Wednesday by the Mortgage Bankers Association, the average contract rate on a 30-year fixed mortgage climbed 12 basis points to 6.97% for the week ending September 11, reaching a peak not seen since May 2025. Back in February, the rate had dropped to its lowest point since 2022, just before the outbreak of the Iran conflict. Since then, borrowing costs have risen sharply, partly due to energy price increases that have intensified inflation concerns.
The continuous climb in borrowing costs has suppressed mortgage demand. The MBA's purchase index, which measures loan applications, edged down 0.8% from the previous week, while the refinancing index tumbled 8.8% to its lowest level since May 2025.
On Wednesday, markets widely anticipated that the Federal Reserve would enact its first interest rate hike since 2023 in an effort to curb inflation. While the Fed's decision does not directly impact mortgage rates, it could trigger ripple effects across the bond market. Mortgage rates are closely tied to the yield on 10-year Treasury bonds, which climbed to a near two-decade high this week.
The MBA survey, conducted weekly since 1990, includes responses from mortgage bankers, commercial banks, and thrift institutions. The data covers more than 75% of all retail residential mortgage applications across the country.
Fed Chair Kevin Warsh laid out a clear framework on August 28 at the Jackson Hole global central bank symposium, stating that there must be confidence that underlying inflation is clearly and sufficiently fast approaching the target, otherwise the committee still has work to do. He also pointed out that there is almost no sign of policy restraint in credit and lending markets. This stance has shifted the market's policy reaction function from "whether the year-over-year figure is falling" to "whether the trend is fast enough and financial conditions are genuinely tight."
The U.S. Consumer Price Index rose 0.4% month-over-month in August, translating to a 3.4% annual increase. The core index, which strips out food and energy, rose 0.3% for the month, coming in above market expectations. Energy costs jumped 2.1% month-over-month, with the year-over-year energy figure still above 16%, while the shelter component rose 3.0% annually, indicating that sticky items have not yet provided a clear signal of cooling.
In this high-rate environment, the U.S. housing market continues to show a pattern of "shrinking volume with firm prices." Zillow economists had previously predicted a 4.3% increase in home sales for 2026 but have now revised that figure down to a 1.3% annual gain, with the fourth quarter expected to see a contraction of 3.5%. NAR Chief Economist Lawrence Yun noted that higher rates naturally dampen buyers' willingness to purchase, yet sales in the first eight months of this year still recorded a 1.6% increase, and home values continue to set fresh records. The median existing-home sale price rose to $440,600 in June, a 1.8% year-over-year increase, marking an all-time high.