Update 1 - US 30-Year Mortgage Rate Surpasses 7%, Reaching Two-Year High

Added charts, background information, data, and contextual explanations.

Ann Saphir

Reuters, September 23 - Last week, the most popular U.S. home loan rates soared to their highest point in more than two years, breaching the 7% mark for the first time since the first week of President Donald Trump’s term. The increases came after the Federal Reserve raised short-term rates to tamp down inflation, while surging oil prices pushed up Treasury yields that underpin home loan costs.

The Mortgage Bankers Association said Wednesday that for the week ended September 18, the average rate on 30-year fixed-rate mortgages leapt 15 basis points to 7.12%. This rate last reached this level in May 2024.

The last time the 30-year mortgage rate exceeded 7% was in late January 2025, just days after Trump began his second term. The sharp increase in rates this year has placed housing affordability in the spotlight, an issue that is troubling both the White House and the broader Republican ranks with only six weeks left until the midterm elections deciding control of Congress.

Trump’s approval ratings have fallen to historic lows. According to a Reuters/Ipsos poll released Monday, only 17% of respondents approved of the President’s handling of the cost of living—an issue Americans see as the top factor in their November voting choices.

Since late February, after a U.S.-Israel coalition attacked Iran, sending global oil prices higher, mortgage rates have risen by more than a percentage point, putting pressure on potential homebuyers and cooling the U.S. housing market.

Mortgage rates tend to move with U.S. Treasury yields, which are sensitive to oil prices and the inflation risks they trigger. Inflation has remained above the Federal Reserve's 2% target for five and a half years.

Last week, the Federal Reserve raised its policy rate (link) by a quarter percentage point to a range of 3.75%-4.00% to bring inflation “more promptly” back down to the 2% target; almost all Fed policymakers expect at least one more rate hike by the end of this year. Traders are also betting on further rate hikes by the Fed.

Projections released alongside the rate decision showed policymakers now expect inflation to fully return to the 2% target by 2029, a year later than their forecast three months ago.

The Mortgage Bankers Association (MBA) stated that last week’s rise in mortgage rates led to decreased refinancing and home purchase loan applications, prompting more borrowers to turn to adjustable-rate mortgages—loans with lower initial borrowing costs than fixed-rate mortgages, but which reset to current rates after several years. According to MBA, adjustable-rate mortgages made up 9.8% of total mortgage applications last week.

The MBA's index tracking overall mortgage application volume fell to a 15-month low, mainly due to refinancing applications dropping for the fourth consecutive week to their lowest level since February 2025.

The 10-year U.S. Treasury yield, which serves as the benchmark for pricing 30-year mortgages, has soared to its highest level in nearly two decades—hovering around 5%, compared to about 4% before the Iran war. Factors pushing yields higher include broad expectations that bringing inflation down to the Fed’s 2% target could take longer than previously thought. Additionally, there are recent signs that U.S. economic growth is accelerating and demand is strengthening across the economy.

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