US Mortgage Rates Near 7%, Making Home Buying Harder

The average 30-year mortgage rate in the US has climbed to 6.99%, marking the highest level in six months, according to data from the Mortgage Bankers Association (MBA). Over the past month, mortgage costs have surged, making homeownership less affordable.

Ad

Decline in Home Loan Applications

The steep increase in borrowing costs has significantly affected homebuyers' ability to secure loans. The MBA’s index of home-purchase applications dropped by 6.6%, the lowest level since February. This sharp decline shows that many potential buyers are delaying or abandoning their plans to purchase a home due to unaffordable mortgage payments.

Refinancing activity, meanwhile, rose slightly by 1.5%. However, it remains low because many homeowners are locked into previously lower rates. With rates nearing 7%, most homeowners find refinancing unappealing unless absolutely necessary, such as in cases of financial hardship or debt consolidation.

Advertisement

These trends reflect a broader cooling in the housing market, as buyers face tough decisions amid rising costs and limited affordability.

Why Are Mortgage Rates Increasing?

Mortgage rates are heavily influenced by US Treasury yields, which have surged at the start of 2025. This is happening for several reasons:

1. Strong Economic Data: Recent economic reports suggest resilience in the US economy, reducing the likelihood of the Federal Reserve cutting interest rates soon.

2. Inflation Concerns: Persistent inflation fears, partly fueled by government spending, have kept Treasury yields elevated. Higher Treasury yields lead directly to increased mortgage rates.

3. Weak Demand for Treasury Bonds: Recent Treasury bond auctions saw low interest from investors, which pushed yields higher as the government had to offer more attractive returns to sell its debt.

Higher corporate debt issuance has also added to the pressure, further driving up yields and, by extension, mortgage rates.

Struggles for the Housing Market

The combination of higher mortgage rates and still-high home prices is making homeownership unattainable for many Americans. First-time buyers, in particular, are being priced out of the market as they face both larger down payments and higher monthly payments.

For builders, the situation is equally challenging. New home construction has slowed as demand has dwindled. Many builders are now offering incentives, such as rate buy-downs or price reductions, to attract buyers. However, these measures have done little to offset the affordability crisis.

Investors are also losing confidence in the housing sector. A key S&P index tracking 18 major homebuilders has plummeted by 20% since November, reflecting growing concerns about the industry’s outlook.

How Rising Rates Are Shaping the Market

Rising mortgage rates are reshaping the housing market in several ways:

• Fewer Buyers: Higher rates are discouraging buyers, leading to fewer offers and longer listing times for homes on the market.

• Lower Home Prices: As demand drops, sellers may be forced to lower their asking prices to attract buyers, especially in overheated markets.

• Shifts in Buyer Preferences: Many buyers are opting for smaller homes or less expensive neighborhoods to manage costs. Others are delaying their plans entirely, waiting for rates to drop.

• Reduced Construction Activity: Builders are slowing down new projects, which could lead to lower housing inventory in the long term, further complicating affordability issues.

Key Takeaways for Buyers and Sellers

For potential homebuyers, the rise in mortgage rates translates to much higher monthly payments. For instance, on a $300,000 loan, the monthly payment would be roughly $1,995 at 6.99% compared to $1,610 at 5.5%. This increase has a significant impact on household budgets, leaving fewer buyers able to compete in today’s market.

Sellers are also feeling the pressure. Homes are taking longer to sell, and many sellers are having to lower their prices to attract buyers. Some homeowners are choosing to stay put, as moving could mean giving up their current lower mortgage rates for a higher one.

The current housing market reflects a difficult environment for both buyers and sellers. Until borrowing costs stabilize or home prices drop significantly, the housing market is expected to remain sluggish.

Also Read: US 30-Year Mortgage Rates Near 7%, Making Homes Harder to Afford