Mortgage Rates Creep Back Toward 7%, Pinching Homebuyers Yet Again

Rates and what moved

If you were hoping mortgage costs would cool in 2026, this week did not help. On Thursday, Freddie Mac said the average 30-year fixed rose for a fourth straight week to 6.95%, up from 6.76% a week earlier. That is the highest since January 2025 and compares with 6.26% a year ago. Rates are edging toward 7% again, squeezing affordability in a market that was already stuck in low gear.

The Fed's quarter-point hike on Wednesday put the target range for the federal funds rate at 3.75% to 4% with a unanimous vote, and officials signaled another increase before year end. It was the first hike since July 2023. After the decision, the 10 year Treasury yield, a bellwether for mortgage pricing, moved lower and is trading just under 5%.

Even so, borrowing costs remain a drag, and the cost of owning a home has become a headline issue heading into the November midterms. As for efforts to bolster housing, the Trump administration has been buying bonds and easing some rules, but a fast turnaround still looks unlikely.

"The recent run-up in rates is hitting an already slow housing market, where sales volume has started to decline year over year from an already low baseline," said Mischa Fisher, Zillow Group's chief economist. However, "greater market confidence in inflation being under control is more likely to bring mortgage rates lower in 2027 and get the recovery back on track."

Affordability strain in the data

Intercontinental Exchange estimates an average-priced home at $440,000. At that level, the monthly mortgage would take 31% of the median household's income, the largest share since July 2025. Confidence among homebuilders also fell this month to the weakest in a year.

Pending home sales in August ticked up 0.3% from July, the National Association of Realtors said, but were still down nearly 5% from a year earlier.

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"It's too little and absolutely too late," said Brad Case, chief residential economist at Homes.com. "What voters are unhappy about is affordability and that's both homebuyers and renters, and everybody who fills their car tank with gas."

Underwriting tweaks and a small win

With rates biting into buying power, officials are trying other levers to widen access. Acting under guidance from the Federal Housing Finance Agency, Fannie Mae and Freddie Mac will permit lenders to employ the VantageScore 4.0 credit model, a shift that could allow some applicants who fail under the traditional FICO system to qualify. Underwriters won't switch over overnight; broad uptake will roll out gradually, though a few effects are already showing.

Marat Tsirelson, president of the Lending Group in Southampton, Pennsylvania, said the change has already helped one family. Using a new VantageScore, he obtained an approval via Fannie Mae's automated underwriting platform for applicants who would have been turned down under the classic FICO model, enabling a purchase of a brick rowhouse in Philadelphia's Port Richmond neighborhood. "It's been a little slow to take effect," Tsirelson said. "We couldn't help certain first-time buyers, now we can."

Separately, starting Jan. 1, the Federal Housing Administration intends to accept mortgage collateral supported by the VantageScore 4.0 credit-scoring model.

What's next and why it matters to your wallet

Late last year, Lawrence Yun, chief economist at the National Association of Realtors, projected a 14% jump in 2026 existing-home sales on the premise that mortgage rates would ease toward a 6% average. But by spring, the war in Iran derailed that expectation. In a June update, he cut his call to a 4% rise this year and cautioned even that "could be difficult if mortgage rates continue to increase." In that update, he based his outlook on mortgage rates averaging 6.5% in 2026. The psychology mirrors the math: "When mortgage rates touched down at 6% at the early part of the year, that generated some excitement psychologically about the non-serious buyer possibly becoming the serious buyer," he said. "Now oppositely, as mortgage rates are going up to 7%, people who are somewhat thinking about buying a home suddenly begin to say, 'That's out of my picture now.'"

For day-to-day finances, the key threads to watch are where mortgage rates settle after the Fed's next moves, how quickly lenders adopt VantageScore 4.0, and whether contract signings can build on August's tiny uptick. Together, they decide how far your paycheck goes on housing and how much is left for everything else.

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