Introduction to Rising Mortgage Rates
The average rate on a 30-year mortgage in the U.S. rose this week to its highest level since early February, further pushing up borrowing costs for homebuyers.
The rate increased to 6.89% from 6.86% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 7.03%.
Factors Influencing Mortgage Rates
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. The key barometer is the 10-year Treasury yield, which lenders use as a guide to pricing home loans. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose. The average rate ticked up to 6.03% from 6.01% last week. It’s still down from 6.36% a year ago, Freddie Mac said.
Impact of Bond Yields
Bond yields have been trending higher, reflecting bond market investors’ uncertainty over the Trump administration’s ever-changing tariffs policy and worry over exploding federal government debt. The 10-year Treasury yield was 4.43% in midday trading Thursday, down from 4.47% late Wednesday.
Current Mortgage Rate Trends
The average rate on a 30-year mortgage has remained relatively close to its high so far this year of just above 7%, set in mid-January. The average rate’s low point so far was six weeks ago, when it briefly dropped to 6.62%. After rising for three straight weeks, the average rate is now at its highest level since Feb. 6, when it averaged 6.89%.
Effect on Home Sales
High mortgage rates, which can add hundreds of dollars a month in costs for borrowers, have reduced purchasing power for many prospective homebuyers this year. That’s helped keep the U.S. housing market in a sales slump that dates back to 2022, when mortgage rates began to climb from the rock-bottom lows they reached during the pandemic. Last year, sales of previously occupied U.S. homes sank to their lowest level in nearly 30 years. Sales fell last month to the slowest pace for the month of April going back to 2009.
Future Outlook
Rising mortgage rates have helped dampen sales during what’s traditionally the peak period of the year for home sales. Mortgage applications fell 1.2% last week from a week earlier as home loan borrowing costs rose, according to the Mortgage Bankers Association. Applications for a loan to buy a home were up 18% from a year earlier. New data suggest sales could slow further in coming months. An index of pending U.S. home sales fell 6.3% last month from March and declined 2.5% from April last year, the National Association of Realtors said Thursday.
Economist Insights
There’s usually a month or two lag between a contract signing and when the sale is finalized, which makes pending home sales a bellwether for future completed home sales. “At this critical stage of the housing market, it is all about mortgage rates,” said Lawrence Yun, NAR’s chief economist. “Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.” Economists expect mortgage rates to remain volatile in coming months, with forecasts calling for the average rate on a 30-year mortgage to range between 6% and 7% this year.
Conclusion
In conclusion, the rise in the average US 30-year mortgage rate to 6.89% signals a challenging time for potential homebuyers. With factors such as bond yields and federal policies influencing mortgage rates, the future of the housing market remains uncertain. As economists predict volatility in mortgage rates, it’s essential for homebuyers to stay informed and adapt to the changing landscape.
FAQs
- Q: What is the current average rate on a 30-year mortgage?
A: The current average rate on a 30-year mortgage is 6.89%. - Q: How do bond yields affect mortgage rates?
A: Bond yields influence mortgage rates, with higher yields typically leading to higher mortgage rates. - Q: What is the forecast for mortgage rates in the coming months?
A: Economists expect mortgage rates to remain volatile, ranging between 6% and 7% this year. - Q: How have high mortgage rates impacted the housing market?
A: High mortgage rates have reduced purchasing power for homebuyers, contributing to a sales slump in the US housing market. - Q: What is the significance of pending home sales data?
A: Pending home sales data serves as a bellwether for future completed home sales, indicating potential trends in the housing market.
Originally Published: May 29, 2025 at 12:15 PM EDT
