Borrowing costs climbed for the sixth week running. The MBA reported the average 30-year fixed contract rate at 7.30% in the week ending Sept. 25 after an 18 basis point rise, the highest mark since November 2023. The average five-year ARM also jumped to 6.47% after a 37 basis point move, a level not seen in more than two years.
Higher rates are taking a toll on demand. The MBA purchase index, a stand-in for home purchase applications, fell 4.3% to its lowest since April 2025. Refinancing decreased 8.7%, continuing a slide that started in mid-August. In short, mortgage costs are back near an almost three-year high while homebuying activity has cooled to a more than one-year low.
Mortgage rates tend to follow the 10-year Treasury, and that benchmark has been climbing. With conflict in the Middle East and the Russia-Ukraine war keeping energy prices and broader inflation elevated, the 10-year yield on Tuesday climbed to a peak not seen in over 19 years. Worries about government debt and fresh readings showing solid economic momentum are adding to the upward pressure.
Earlier this month, the Fed hiked its key policy rate for the first time since 2023 to tackle inflation. Investors also anticipate policymakers could lift it again before year end. That backdrop has flowed through to higher borrowing costs across the board.
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Mark Fleming, chief economist at First American Financial Corp., said rates above 7% make homeowners with 3% or 4% mortgages more likely to stay put, since the gap between their current loans and today's rates has widened. He added that a big drop in prices is unlikely unless a major downturn forces sales such as foreclosures. As Fleming put it, prices are "downside sticky." "They generally slow down or stop going up."
Sales of previously owned homes, which dominate the US market, continue to lag. In August, closings on existing-home contracts dropped to the slowest pace in more than a year. For context on the rate and application figures, the MBA's weekly survey has run since 1990 and captures more than 75% of US retail residential mortgage applications submitted by mortgage bankers, commercial banks, and thrifts.
If you're on the sidelines, higher loan costs can ripple through everything from rent talks to how far a down payment stretches. Keeping an eye on rates, applications, and the Fed's next moves can help you set expectations for what housing might cost you next.
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