A 7% mortgage rate might soon be a hurdle that homebuyers would rather not face. Freddie Mac reports that the average 30-year fixed mortgage rate rose to 6.95% from 6.76% last week, drawing closer to that threshold. This is the biggest one-week spike in mortgage rates seen in the last sixteen months, and it comes alongside the fourth week of rising rates in a row. Interest rates on mortgages have been rising steadily since the first week of President Trump’s second term began on January 30, 2025. Prospective homeowners who are presently sitting on their hands may find it difficult to purchase a property due to elevated mortgage rates. Getting a mortgage now could end up costing thousands more than getting one earlier this year, when rates were around 6%. This is over the duration of a 30-year term for a typical property. There may be some purchasers who are hesitant due to the recent substantial price increases.

Mortgage applications for new home purchases plummeted 19% compared to the same week last year, according to the Mortgage Bankers Association, which revealed the data on Wednesday. The number of people looking to refinance their current mortgages fell by 65% from the same period last year, according to the research. The number of properties that have been put under contract has also reduced compared to previous year, according to new statistics released on Thursday. While pending home sales were up 0.3% from July to August, they were down 4.7% from the same period last year. “The housing market is still sluggish, with contract signings below last year,” said Lawrence Yum. “This is due to higher mortgage rates offsetting the increased buying power created by job gains and income growth outpacing home price growth.”

A glimmer of hope that mortgage rates may fall earlier this year faded. For the first time in three years, the average 30-year fixed mortgage rate briefly fell below 6% in February. Home mortgage rates have risen in recent months due to the outbreak of war in Iran, which has led to higher oil costs and overall inflation. Interest rates on mortgages track the 10-year Treasury yield, which changes as a result of market participants’ inflation predictions and has a ripple effect on borrowing costs nationwide. The 10-year Treasury and the bond market as a whole have been on edge recently due to concerns about rising national debt and the potential effects of the ongoing crisis in the Middle East.

The yield on a 10-year Treasury note hit its highest level since 2007 this week, continuing an inverse relationship with bond prices. As part of a refocused effort to rein in inflation, the Federal Reserve raised its benchmark interest rate by a quarter percent on Wednesday, the first time it has done so since July 2023. Mortgage rates could go down in the long term because of the Fed’s action, says Mischa Fisher. “A higher fed funds rate today is the medicine the housing market needs to recover tomorrow,” Fisher said. “Greater market confidence in inflation being under control is more likely to bring mortgage rates lower in 2027 and get the recovery back on track,” he added. “Unfortunately, it’s going to be a challenged end of the year for home sales before we get there.”