NEW YORK (AP) — The average long-term U.S. mortgage rate increased this week to 7.28%, the highest level in nearly three years. According to mortgage buyer Freddie Mac, this rate rose from 7.03% last week, marking the largest increase in four years. A year ago, the average rate was 6.34%. This marks the sixth consecutive week of rising mortgage rates.
The current average rate is the highest since November 22, 2023, when it reached 7.29%, and it has not climbed this quickly week-to-week since October 2022. Borrowing costs on 15-year fixed-rate mortgages also rose this week, increasing to 6.60% from 6.42% last week, compared to 5.55% a year ago.
Higher mortgage rates can significantly increase monthly costs for borrowers, which may limit purchasing power for homebuyers. For instance, the increase in the rate since late February, when it briefly dipped to 5.98%, translates to an additional $276 monthly cost for a borrower financing a $400,000 home loan at the current average rate.
The housing market has been facing challenges this year, largely attributed to elevated mortgage rates. These rates have been rising since the U.S. and Israel's military actions in Iran in late February. Mortgage rates are influenced by factors such as inflation, Federal Reserve policy, and the expectations of bond-market investors regarding the economy. They typically follow the trend of the 10-year Treasury yield, which serves as a benchmark for pricing home loans.
The 10-year Treasury yield was at 3.97% in late February but surged to 5.27% in midday trading on Thursday, returning to levels seen before the 2007 financial crisis. High yields can slow economic growth by increasing borrowing costs and negatively impacting stock prices.
The U.S. housing market has been stagnant since 2022, when mortgage rates began to rise from pandemic-era lows. Existing home sales were nearly flat last year, reaching a 30-year low. The National Association of Realtors reported a 2% decline in existing home sales in August compared to July, resulting in a seasonally adjusted annual rate of 3.98 million units, the slowest pace in over a year.
Mortgage applications, which include loans for purchasing homes or refinancing existing mortgages, fell by 6% last week, marking the fourth consecutive weekly decline, according to the Mortgage Bankers Association. Applications for refinancing also decreased. As a result of elevated rates, more potential homebuyers are turning to adjustable-rate mortgages (ARMs), which accounted for over 10% of all mortgage applications last week, as reported by the MBA.