Mortgage rates race toward 7%, hit 15-year high

Mortgage rates surged closer to 7% this week, in a move that caused even repeat buyers to back off from purchase plans.

The average rate on the 30-year fixed mortgage jumped to 6.70% from 6.29% last week, according to Freddie Mac, its highest level since July 2007. Rates increased over a full point this month and are now more than double where they were at the start of the year.

Elevated borrowing costs have crushed affordability, driving inflation-weary homebuyers to lower their purchase budgets or simply walk away from house hunting. Those who haven’t run off are negotiating sales before rising rates wipe out even more of their buying power.

“There has been a significant change in homebuyer sentiment, especially with what rates have done in recent weeks,” Jason Sharon, owner and broker of Home Loans Inc., told Yahoo Money. “I’ve had 10 people in the last 10 days effectively decide that because of the change in rates they’re withdrawing from the home shopping for a bit. Most of them were repeat buyers.”

Higher rates crush buyer demand

With mortgage rates now almost 3.5 percentage points higher than they were from the start of the year, more and more buyers have pulled back on purchase plans.


Demand for mortgages stands at a 22-year low, according to the latest data from the Mortgage Bankers Association, as higher rates continue to depress purchase and refinance activity. Purchase applications fell 1% from one week earlier, and were 29% lower than the same week a year ago.

At the same time, elevated home prices and tight inventory levels have cratered affordability to its lowest point in 37 years.

The ripple effects are unmistakable.

Existing home sales have declined for seven straight months, according to the National Association of Realtors. Pending home sales – a leading indicator of the housing market's health – fell 2.0% in August from a month earlier. Contract signings are down 24.2% year over year.

NEW YORK, Sept. 6, 2020  -- People wait to visit a house for sale in Floral Park, Nassau County, New York, the United States, on Sept. 6, 2020. Home buyers eying for cozy backyards and more office space are staging bidding wars in the suburbs surrounding New York City amid the spread of the COVID-19 pandemic. (Photo by Wang Ying/Xinhua via Getty)  TO GO WITH Feature: Space-eager home buyers stage bidding wars in New York City suburbs (Xinhua/Wang Ying via Getty Images)

“The housing market had a quiet summer, you could hear crickets, buyers were just looking from the fence,” Adriana Perezchica, president of Via Real Estate Group, told Yahoo Money. “Interest rates going up equals a higher monthly payment and that definitely left a lot of people out of the race to own a home.”

For instance, the median home price of $435,000 translates into a monthly mortgage payment of $2,300, according to That’s about 44% of the median annual income of $71,000 before factoring in property taxes, insurance and other expenses.

That’s too high for many buyers, but not all.

“There’s another demographic that this climate has given them the opportunity to own an entry-level home with less competition,” Perezchica said. “[Buyers] that took action had an advantage. We were able to get seller concessions and buyers felt they had the upper hand for the first time in a decade.”

Sellers open to negotiation

Sellers have noticed the change and are acting accordingly.

The share of home sellers who reduced their listing price increased to 19.5% in September, according to, up from 19.4% a month earlier. A year ago in August, only 11% of homes registered a price cut.

Time on market also slowed for the second consecutive month, up seven days year over year. Newly listed homes were down 9.8% year over year.

“We’re definitely seeing less aggressive sellers now,” Sharon said.

That includes builders who are increasingly offering incentives and price reductions to move inventory.

“There’s still a demand for houses, people are still going to move. But you’re also going to see people being reasonable in pricing their homes,” Sharon said. “Before, you could price a home at whatever you wanted and see what would happen. Now, if a seller prices a home like that they could have their listing sit on the market for a month or two and that affects their plans as [buyers] get smarter.”

Where rates are headed

Prospective buyers depart an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy. (Credit: Jonathan Ernst, REUTERS)
Prospective buyers depart an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy. (Credit: Jonathan Ernst, REUTERS) (Jonathan Ernst / reuters)

Further increases in mortgage rates are coming, according to economists.

The 30-year rate tends to follow the 10-year Treasury yield, which hit 4% earlier this week, its highest point since 2008. The increase came soon after the Federal Reserve hiked its benchmark rate by three-quarters of a point last week and double-downed on its commitment to fight higher prices.

If inflation continues to remain high, it’s likely mortgage rates will hit 7% before year-end.

“With monetary policy continuing to tighten, mortgage rates are expected to continue climbing,” George Ratiu,'s manager of economic research, said in a news statement. “While even two months ago rates above 7% may have seemed unthinkable, at the current pace, we can expect rates to surpass that level in the next three months.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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