Mortgage rates in the United States have climbed to their highest level in over two years, adding further pressure to a housing market already constrained by elevated home prices and weak sales activity. According to data released by the Mortgage Bankers Association on Wednesday, the average contract rate on a 30-year fixed-rate mortgage jumped 15 basis points to 7.12% for the week ending September 18, marking the highest level since May 2024. In contrast, the rate on a 5/1 adjustable-rate mortgage unexpectedly declined 13 basis points to 6.1%. The 30-year fixed mortgage rate can be understood as the sum of the 10-year Treasury yield, the spread of mortgage-backed securities relative to Treasuries, and the costs plus profit margins associated with loan origination, servicing, and guarantees. Since mortgage principal is paid down gradually and borrowers may prepay or refinance, the interest rate risk horizon differs from the 30-year contract term; therefore, the market typically uses the 10-year Treasury yield as a key pricing benchmark rather than longer-dated risk-free rates or short-term borrowing costs. The MBS spread also fluctuates with factors like prepayment risk.

With the 30-year fixed mortgage rate rising to 7.12%, purchase loan applications and refinance applications fell by 0.8% and 2.6%, respectively, underscoring how higher long-term financing costs are further eroding housing affordability. At the same time, as relocation demand from marriage and job changes among higher-income and middle-class households continues to provide some support, economists hold differing views on the potential for further downside in the housing market. As illustrated in the accompanying data, mortgage rates breaking above 7% represent the highest borrowing costs since 2024. Source: Mortgage Bankers Association.

US Mortgage Rates Climb Above 7%, Marking Over Two-Year High

Mortgage rates have been on an upward trend since February, when the outbreak of conflict in Iran drove energy prices higher, reigniting inflation concerns. The Federal Reserve raised its benchmark interest rate for the first time since 2023 last week in an effort to curb price pressures. As borrowing costs climb, fewer Americans are applying for home financing. The Mortgage Bankers Association's purchase index, which tracks purchase loan applications, fell 0.8% to a four-week low. The association's refinance index dropped 2.6% to its lowest level since February 2025. Crossing the 7% threshold could further dampen demand. "The significance of 7% lies purely in the psychological impact when people see rates starting with the number '7'," said Daryl Fairweather, chief economist at Redfin. Fairweather, a senior economist, expects higher rates to limit home price gains, but sales will remain sluggish. As data shows, homebuyers in recent years have faced both high prices and high mortgage rates—prices rose during the low-rate period and have remained elevated despite subsequent Fed rate hikes and cuts. Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing and Urban Development.

Sales of existing homes fell to their lowest level in over a year in August. This month, homebuilder confidence matched its lowest reading since late 2022, as higher rates deterred potential buyers while rising prices for construction materials and fuel pushed up costs. Homebuilders have also been cutting jobs—employment in residential construction peaked in September 2024 and has been on a downward trend since. "The housing market itself is clearly in a recession, but it may not be deep enough or last long enough to drag the rest of the economy back into a downturn," said Ben Ayers, senior economist at Nationwide. Borrowing costs are likely to remain elevated. Mortgage rates track closely with the 10-year Treasury yield, which is hovering near its highest level in nearly two decades. Nationwide expects mortgage rates to remain around 7% at least through the end of the year. Even so, the scope for further declines in the housing market may be limited. As data shows, home sales and new residential construction remain at low levels—high prices and high mortgage rates keep buyers and builders cautious. Sources: National Association of Realtors, U.S. Census Bureau, U.S. Department of Housing and Urban Development, National Association of Home Builders/Wells Fargo.

"At this point, we are very close to the bottom," said Hannah Jones, senior economist at Realtor.com. "Hitting the 7% figure does have a psychological impact, but I don't expect a cliff-like drop in demand." Jones noted that while no one would move solely to time the market, marriage, divorce, and job changes will continue to support the housing market. The Mortgage Bankers Association has conducted this survey weekly since 1990, using feedback from mortgage banks, commercial banks, and savings institutions. The data covers more than 75% of retail residential mortgage applications in the United States.

Persistence of High Long-Term Treasury Yields: Inflation Pressures and AI Financing Demand

The recent persistence of elevated Treasury yields reflects a repricing of market expectations around future policy rates, energy-driven inflation stemming from escalating geopolitical tensions in the Middle East, and the risk compensation required for holding long-dated bonds. On September 16, 2026, the Federal Reserve raised its benchmark rate by 25 basis points, lifting the target range for the federal funds rate to 3.75%-4.00%; the median of officials' rate projections released at the same time implies one more 25-basis-point hike within the year. On September 18, corresponding to the mortgage survey date, the 10-year and 30-year Treasury yields stood at 5.01% and 5.34%, respectively; although they fell back to 4.96% and 5.29% on September 21, they remain at high levels. Inflationary pressures from energy prices and expectations of further tightening are transmitting through long-term funding markets to corporate investment and household home-buying costs.

Expansion of AI infrastructure is adding to long-term financing demand. Assets such as hyperscale AI data center campuses and associated power infrastructure require long-duration capital support. When tech companies issue long-term bonds, they increase the interest rate risk that investors must absorb; project operators may also lock in financing costs through "floating-rate borrowing plus fixed-rate swaps," passing additional long-term rate risk to the pricing of long-dated Treasury yields. For the 10-year-and-beyond segment of the Treasury yield curve, a more critical structural force comes from the competition for global long-duration bond capital between fiscal deficits and AI-related issuance: the U.S. Treasury balance has broken through the unprecedented $40 trillion super threshold, with the 2026 fiscal year deficit projected at approximately $1.9 trillion-$2.1 trillion. Meanwhile, AI-related debt has already approached 15% of this year's investment-grade bond issuance; Goldman Sachs notes that hyperscale cloud providers (AI Hyperscalers) such as Google parent Alphabet and Amazon Global have issued roughly $194 billion in bonds this year and expects their direct financing supply could reach about $250 billion in 2026. On a broader scale, AI Hyperscalers including Alphabet, Amazon, and Meta have issued close to $220 billion in bonds since the start of this year—more than double the $108 billion issued in all of 2025—and based on available comparable data, this represents a record-breaking issuance pace for the period. Researchers at the Dallas Fed point out that these financing channels may influence long-term yields and term premiums. The core transmission mechanism is that increased demand for long-duration funds and greater supply of duration risk, all else being equal, exert additional upward pressure on the interest rate/yield curve dynamics for maturities of 10 years and beyond.