Average US long-term mortgage rate leaps to 6.38%, the highest level in more than 6 months

The average long-term U.S. mortgage rate climbed this week to its highest level in more than six months, driving up borrowing costs during what’s typically the busiest time of the year for prospective home buyers.

The benchmark 30-year fixed rate mortgage rate rose to 6.38% from 6.22% last week, mortgage buyer Freddie Mac said Thursday. One year ago, the rate averaged 6.65%.

The last time the average rate was higher was Sept. 4, when it was at 6.5%.

When mortgage rates rise, they can add hundreds of dollars a month in costs for home shoppers, limiting what they can afford to buy.

Only four weeks ago, the average rate had dropped to just under 6% for the first time since late 2022, but it has been rising as skyrocketing oil prices due to the war with Iran fuel worries about high inflation.

Meanwhile, borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week. That average rate rose to 5.75% from 5.54% last week. A year ago, it was at 5.89%, Freddie Mac said.

Mortgage rates are influenced by several factors, from the Federal Reserve’s interest rate policy decisions to bond market investors’ expectations for the economy and inflation. They generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

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The 10-year Treasury yield was at 4.39% at midday Thursday, up from around 4.26% a week ago.

Treasury yields have been climbing as higher oil prices increase expectations for higher inflation. As long-term bond yields rise, that pushes up mortgage rates.

Higher inflation could also keep the Fed from cutting interest rates. The central bank doesn’t set mortgage rates, but its decisions to raise or lower its short-term rate are watched closely by bond investors and can ultimately affect the yield on 10-year Treasurys.

At its meeting last week, the Fed decided to hold off on cutting interest rates. Chair Jerome Powell highlighted the increasingly uncertain outlook for the U.S. economy and inflation in the wake of the Iran war, suggesting the Fed could stand pat for an extended period.

The U.S. housing market has been in a slump since 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes were essentially flat last year, stuck at a 30-year low. They have remained sluggish so far this year, declining in January and February versus a year earlier.

While the pace of home price growth has slowed or fallen in many metro areas, daunting affordability hurdles remain for many aspiring homebuyers because wage growth has not kept up with home prices.

The average rate on a 30-year mortgage remains below where it was a year ago, which should benefit home shoppers who can afford to buy at current rates. But the recent ramp up in rates has begun to give many prospective home shoppers pause just as the spring homebuying season gets going.

Mortgage applications fell 10.5% last week from the previous week, according to the Mortgage Bankers Association. Applications for both purchase and mortgage refinancing loans declined.

“Higher borrowing costs, affordability pressures and economic uncertainty are likely prompting some prospective buyers to delay purchase decisions,” MBA CEO Bob Broeksmit said in a statement.