The average rate on a 30-year fixed mortgage in the US is nearing 7%, marking the first time since January 2025. This climb, driven by the Iran war pushing up Treasury yields, is adding further strain to a housing market already in its fourth year of stagnation, with prospective buyers growing more cautious and homebuilders facing squeezed profit margins.
According to Freddie Mac data, the average 30-year fixed mortgage rate stood at 6.76% last week, but daily rates have since jumped above 7%. The 7% threshold itself has a limited direct impact on affordability, but economists note that this level could further dent buyer confidence, adding a disappointing note to a market that had been expected to begin a recovery.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, stated that such a sharp rise in rates will likely prompt potential buyers to pause, potentially refraining from signing contracts or applying for loans. Mortgage rates typically follow the 10-year Treasury yield, which broke above 5% on September 14 for the first time since late 2023. The Federal Reserve is expected to raise interest rates on September 16, marking its first hike in three years. If the market perceives the Fed as serious about tackling inflation, a rate hike could lower Treasury yields and thus reduce mortgage rates; however, if viewed as a signal of genuine inflation concerns in the economy, it could push yields higher.
The Iran war has been a primary driver of rising mortgage rates this year, dealing a heavy blow to a US housing market already in its fourth year of sluggish sales. Data from the National Association of Realtors shows that existing home sales fell 2% month-over-month in August, reaching a seasonally adjusted annual rate of 3.98 million units, the lowest level since June of last year. Zillow economists had previously forecast a 4.3% increase in home sales for 2026, but have now revised this to a 1.3% annual gain, with a 3.5% decline expected in the fourth quarter. Zillow economist Kara Wu noted that calculations for the remainder of the year will be highly challenging.
Differences of a few percentage points in mortgage rates can translate into hundreds of thousands of dollars in interest payments over a 30-year loan. Economists point out that, given the likelihood of persistently high rates, buyers will find it difficult to reduce their burden through refinancing in the near term. In February, mortgage rates briefly dipped below 6%, sparking buyer interest and optimism for a sales rebound, but rates surged following the US and Israeli attacks on Iran. Recent bond sell-offs, fueled by concerns over stubborn inflation and fiscal deficits, have further pushed Treasury yields higher.
Reagan Black in Charleston, South Carolina, has been trying to sell his apartment for months, but has seen little interest. After reducing his list price from $225,000 to $215,000, he is still leaning toward taking it off the market and renting it out instead. Maria Bozza, a real estate agent on Long Island, New York, hosted only one family at a recent open house, where the seller has cut the list price from $900,000 to $850,000. At current rates, a buyer's monthly mortgage payment would be close to $5,000.
The current economic environment differs from the rate spike of 2023, and not necessarily for the better. In 2023, unemployment was at historic lows, wage growth was strong, and potential first-time buyers, though facing intense bidding wars, had solid job prospects. Today, the economic outlook is uncertain, with low hiring rates, mediocre wage growth, and a volatile geopolitical landscape, making potential buyers hesitant to commit to major expenditures. Fratantoni noted that poor wage growth and employment gains concentrated in a few sectors will translate into weakness on the housing demand side.
On the positive side for buyers, inventory is significantly higher than in 2023. Back then, many homeowners with mortgage rates between 2% and 3% refused to sell, leading to scarce listings, fierce competition, and soaring prices. Now, inventory is near pre-pandemic levels, as homeowners who have waited in vain for rates to drop have decided to sell. However, a 7% mortgage rate could undermine this progress.
Jonathan Pearl in Marlborough, Massachusetts, moved out of state for a job opportunity but kept his original home. The property is worth nearly $900,000, with over 3,000 square feet of living space on 1.5 acres. His mortgage, locked in at a 2.875% rate, requires monthly payments of just $2,300. He has considered selling, but might return to the area and knows he couldn't find a comparable home at such a low price, so he plans to hold onto it for a few more years before deciding.
A 7% mortgage rate could also weigh on new home construction. Homebuilders have been offering substantial rate buydowns to stimulate sales, but higher rates make these buydowns more expensive, eroding builder profit margins and reducing the incentive to boost production. Economists advise that buyers should not expect rate relief anytime soon, as the high-mortgage-rate environment may become the new norm. Fratantoni pointed out that as a mortgage borrower, you are competing for funds with governments and all other issuers around the world.