US Mortgage Rates Climb for Fourth Week, Approaching 7% Threshold

The average rate on a 30-year fixed mortgage in the U.S. has climbed for a fourth consecutive week, nearing the key 7% level and applying fresh pressure to an already strained housing market. The increase dampens hopes for a near-term recovery as higher borrowing costs continue to sideline potential homebuyers.

Rates Hit Multi-Year High

According to data released Thursday by Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.95% for the week ending September 17. This marks a significant increase from the previous week's 6.76% and is the highest level recorded since January 2023. By comparison, the rate stood at 6.26% during the same period last year.

The steady climb in mortgage rates follows the Federal Reserve's decision on September 16 to raise its benchmark federal funds rate by 25 basis points to a target range of 3.75% to 4.00%. The central bank cited stubbornly high inflation as a key reason for the move, its first interest rate hike since July 2023.

Affordability Crisis Deepens

The combination of elevated home prices and rising interest rates is worsening the housing affordability crisis. A typical household would now need to allocate approximately 31% of its median income to cover mortgage payments on a median-priced home of $440,000, according to estimates from Intercontinental Exchange Inc. This represents the highest affordability burden for buyers since July 2023.

This financial strain is reflected in market sentiment. A report this month showed that confidence among U.S. homebuilders has fallen to its lowest point in a year, a direct response to the impact of high financing costs on market demand.

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Market Activity Remains Subdued

High borrowing costs are continuing to suppress real estate transactions. Data from the National Association of Realtors (NAR) released Thursday showed that pending home sales, a leading indicator of future sales, fell by 4.7% in August compared to the previous year.

NAR Chief Economist Lawrence Yun noted that while job and income growth have boosted purchasing power, the benefit has been largely negated by high mortgage rates. As a result, the volume of home contract signings remains about 30% below pre-pandemic levels. This follows separate data showing existing-home sales fell 2.0% in August from the prior month.

Analysts Revise Downward Forecasts

The persistence of high rates has forced real estate analysts to temper their expectations for the year. Late last year, the NAR had projected a 14% increase in existing-home sales for 2024, based on an assumption that mortgage rates would ease toward 6%. By June, that forecast was slashed to just 4% growth.

With rates now approaching 7%, the prospect of a meaningful housing market rebound appears to be delayed further. "When rates briefly dipped to around 6% earlier this year, it did stimulate some sidelined buyers to re-enter the market," Yun stated. "As rates climb back toward 7%, some of those potential buyers may once again find that homeownership is beyond their financial reach."