Average long-term US mortgage rate holds at 7.4%, remaining at highest level in nearly 3 years

Mortgage rates held steady this week, keeping the average long-term U.S. home loan rate at its highest level in nearly three years.

The benchmark 30-year fixed-rate mortgage was unchanged from last week at 7.40%, mortgage buyer Freddie Mac said Thursday. One year ago, the average rate was 6.27%.

The latest reading ends a seven-week climb for the average rate, which is at the highest level since Nov. 16, 2023, when it was at 7.44%.

Meanwhile, borrowing costs on 15-year fixed-rate mortgages, often sought by borrowers refinancing a home loan, eased this week. That average rate dropped to 6.71% from 6.73% last week. A year ago, it was at 5.52%.

Rates on home loans are influenced by inflation, Federal Reserve policy and bond-market investors’ expectations for the economy, among other factors. They generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

Mortgage rates have been climbing since late February, when the U.S. war with Iran began, pushing up the price of oil and driving inflation higher. The run-up in rates also reflects heightened bond market volatility, which has pushed up yields on U.S. Treasurys.

U.S. home sales remain stalled this year in large part because of rising mortgage rates, which can add hundreds of dollars a month in costs for borrowers, limiting homebuyers’ purchasing power and prompting many to put off buying a home.

The recent string of mortgage rate increases snapped as the 10-year Treasury yield pulled back from its highest level since 2002.

The yield was at 5.10% at midday Thursday on the bond market. It had topped 5.30% earlier this month amid worries about high inflation, signals of a strong U.S. economy and other factors. It’s still well above its 3.97% level from before the war with Iran began.

In late February, the average rate on a 30-year mortgage briefly dipped to 5.98%, its lowest level going back to late 2022. The 1.42 percentage point increase in the rate since then translates roughly into an additional monthly cost of $376 for a borrower financing a $400,000 home loan at the current average rate.

Depending on a borrower’s income, credit and other factors, they may qualify for a rate on a 30-year mortgage that is below or above the current average.

The U.S. housing market has been in a slump since 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes were essentially flat last year, stuck at a 30-year low.

This week, the National Association of Realtors said that existing U.S. home sales rose in September from the previous month, but slowed compared to a year earlier amid rising mortgage rates and home prices.

The surge in mortgage rates in recent weeks has put off many would-be homebuyers.

Mortgage applications, which include loans to buy a home or refinance an existing mortgage, fell 2.7% last week from the previous week as mortgage rates rose, according to the Mortgage Bankers Association.

Faced with higher borrowing costs due to rising mortgage rates, more homebuyers are opting for adjustable-rate mortgages, or ARMs. Such loans, which typically offer lower initial interest rates than traditional 30-year, fixed-rate mortgages, accounted for 10.5% of all mortgage applications last week — the highest level in a year, MBA said.

Despite holding steady this week, it's likely that the recent upward march in mortgage rates is not over.

Reports this week showing prices at the consumer and wholesale level rose more than economists expected flashed the latest sign that inflation has worsened as rising oil prices add on costs to all manner of goods and services.

The reports could persuade the inflation-fighters at the Federal Reserve to hike their key interest rate by December, and could set the stage for more rate increases early next year, said Jiayi Xu, a senior economist at Realtor.com.

“In other words, mortgage rates are unlikely to ease anytime soon, but bringing inflation under control would pave the way for lower rates and a much-needed boost to affordability for the year ahead,” Xu said.

Wall Street traders now expect the Fed will keep its short-term rate unchanged at its next policy meeting this month, but the odds of a rate increase in December have jumped to 64.6% from 49.9% a month ago, according to data from the CME Group.

While the central bank doesn’t set mortgage rates, its decisions to raise or lower its short-term rate are watched closely by bond investors and can ultimately affect the yield on 10-year Treasurys.

In its latest forecast, mortgage buyer Fannie Mae projects that the rate on a 30-year mortgage will average 7.4% in the final quarter of this year and average 7.5% in 2027.