Borrowing money to buy a home in the United States has become more expensive again. The average rate on a 30-year fixed mortgage climbed to 7.28% this week, reaching its highest level in nearly three years.
Freddie Mac said Thursday that the average rate increased from 7.03% a week earlier. It was the sixth consecutive weekly increase and the largest one-week jump in about four years.
The move comes at a difficult time for buyers who were already dealing with elevated home prices and limited affordability.
Why mortgage rates are rising
Mortgage rates don't move directly with the Federal Reserve's overnight interest rate. They are closely connected to longer-term Treasury yields, particularly the 10-year Treasury note.
The 10-year Treasury yield has climbed sharply as investors have reassessed inflation, economic growth and the path of U.S. interest rates.
Reuters reported that the 10-year Treasury yield reached its highest level in nearly 25 years this week.
Stronger-than-expected U.S. economic growth has also contributed to the increase in longer-term borrowing costs. At the same time, inflation remains above the Federal Reserve's 2% target.
The timing is difficult for homebuyers
Higher rates matter because even a relatively small change in the mortgage rate can significantly alter a household's monthly payment.
The latest increase is especially noticeable because mortgage rates had fallen below 6% earlier this year before beginning a sustained climb.
According to an Associated Press analysis, the roughly one-percentage-point increase since late February adds about $276 a month in principal and interest for a borrower with a $400,000 mortgage.
The exact payment for any individual borrower will depend on the loan amount, down payment, credit profile, taxes, insurance and the rate actually offered by the lender.
Buyers are already pulling back
Rising rates are showing up in mortgage activity.
The Mortgage Bankers Association reported another decline in mortgage applications as borrowing costs continued to rise. Applications fell 6% in the latest week, according to AP's report.
Higher rates can discourage potential buyers from entering the market because the same home becomes more expensive to finance.
Some buyers may respond by looking at less expensive properties, delaying their purchase or considering different types of mortgages.
Refinancing is becoming harder too
The impact isn't limited to people purchasing their first home.
Homeowners who were hoping to refinance also face higher borrowing costs. A refinance only makes financial sense for many borrowers when the new loan provides enough savings to justify the costs involved.
With rates moving higher, some homeowners who might otherwise have considered refinancing may decide to keep their existing mortgages.
What the Federal Reserve has to do with it
The mortgage market is also being influenced by expectations about what the Federal Reserve will do next.
The Fed raised its policy rate in September while continuing to focus on persistent inflation. But the September employment report showed that U.S. employers added only 29,000 jobs, while the unemployment rate rose to 4.2%.
That combination has complicated the outlook for monetary policy. A weaker labor market could argue for caution, while above-target inflation could push policymakers toward keeping rates higher for longer.
Newspriint recently reported on the September U.S. jobs report , which provides more context on the latest labor-market data.
Why Treasury yields matter beyond mortgages
The rise in Treasury yields affects more than home loans.
Government bond yields influence borrowing costs throughout the economy, including corporate debt, consumer loans and other forms of financing.
Higher borrowing costs can therefore affect household spending and business investment at the same time.
The move in mortgage rates is happening alongside a broader rise in Treasury yields. Newspriint has also covered the recent rise in U.S. Treasury yields and its effect on financial markets .
What homebuyers should watch next
The next few weeks of economic data will be important for the direction of borrowing costs.
Investors will be watching inflation figures, employment data, Treasury yields and comments from Federal Reserve officials for clues about the central bank's next decision.
For the housing market, the key issue is whether mortgage rates stabilize or continue climbing. A sustained period above 7% would keep affordability under pressure for many prospective buyers.
The takeaway
The U.S. housing market is facing another affordability challenge as the average 30-year mortgage rate reaches 7.28%. The increase is being driven largely by higher long-term Treasury yields and continuing inflation concerns.
For buyers and homeowners, the change means financing costs deserve closer attention as the broader economic outlook develops.
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