The average rate on a 30-year US mortgage has climbed to 7.24%. That is the highest level in 19 months. For a buyer taking out a $500,000 loan, the monthly payment now tops $3,400. Seven months ago, that same loan carried a payment of roughly $2,995. The gap is $405 a month, or about $4,860 a year. That is real money vanishing from a household budget.
This spike isn’t random. Rates have jumped 125 basis points since late February, when the average rate briefly dipped to 5.98%. That was the lowest point since late 2022. The driver? The US-Iran conflict that began in late February. Expectations of higher inflation from surging oil prices have pushed up long-term bond yields. Lenders use these yields to price home loans. The 10-year Treasury yield, which was at 3.97% before the war, breached 5% on Monday for the first time since 2023. It hovered at 4.94% during midday trading Thursday.
The Federal Reserve is adding fuel to the fire. Wednesday, the central bank raised its key interest rate for the first time in three years to tame inflation. It also signaled another hike could come later this year. While the Fed doesn’t set mortgage rates directly, its moves influence bond investors. That, in turn, affects the 10-year Treasury yield. The connection is clear: higher Fed rates, higher bond yields, higher mortgage costs.
The housing market is already stuck in a rut. Sales of previously occupied US homes were flat last year, stuck at a 30-year low. They slowed again last month. Pending home sales, a near-term bellwether, inched up 0.3% from July but fell 4.7% from August last year, according to the National Association of Realtors. A month or two lag exists between contract signing and finalization, but the trend is clear.
The problem runs deeper than just rates. A sharp run-up in home prices, especially in the early 2020s, has left many buyers priced out. Add a chronic national shortage of homes, worsened by years of below-average construction, and the picture is grim. As rates keep marching higher, prospective shoppers are delaying purchases. The affordability crunch is tightening, not loosening.