US Average Mortgage Rate Hits Nearly Three-Year High

The average rate for long-term U.S. mortgages climbed this week to its highest level in nearly three years. The benchmark 30-year fixed-rate mortgage rose to 7.28% from 7.03% last week, according to mortgage buyer Freddie Mac. A year ago, the average rate stood at 6.34%.

This rise in borrowing costs makes purchasing a home more expensive, directly impacting homebuyer purchasing power and potentially causing prospective buyers to delay their decisions. In late February, the average rate for a 30-year mortgage briefly dipped to 5.98%. The subsequent increase of approximately one percentage point translates to an additional monthly cost of about $276 for a borrower financing a $400,000 home loan at current average rates.

The elevated mortgage rates have significantly slowed the U.S. housing market this year. Mortgage application volumes have decreased, and applications for refinancing existing mortgages have also declined. Last week, total mortgage applications dropped by 6% from the previous week.

Mortgage rates are influenced by inflation, Federal Reserve policy, and investor expectations for the economy. They generally follow the trajectory of the 10-year Treasury yield. Rising inflation and oil prices have pushed these yields higher, which is reflected in mortgage rates and contributes to broader economic slowdown.

The slowdown in the housing market has persisted since 2022, when rates began their ascent from pandemic-era lows. Some buyers are now turning to adjustable-rate mortgages (ARMs), which typically offer lower initial interest rates. Last week, ARMs accounted for over 10% of all mortgage applications.