US mortgage rates surpassed the 7% mark last week, hitting their highest point since early May and continuing a steady rise that threatens to dampen the housing market.
According to data from the Mortgage Bankers Association (MBA) released on Wednesday, the average contract rate for a 30-year mortgage increased by 10 basis points to 7.09% in the week ending January 10. Since late September, home financing costs have surged by nearly a full percentage point.
Mortgage rates closely follow US Treasury yields, and the 10-year yield climbed to its highest level since October 2023 on Tuesday. Borrowing costs have surged since mid-December due to a combination of factors: a resilient economy, expectations of fewer Federal Reserve interest rate cuts, and concerns that inflation may remain elevated due to lingering effects of prior policies.
The combination of rising mortgage rates and persistently high home prices is eroding affordability, discouraging many potential buyers from entering the market.
Despite these challenges, the MBA's index for home purchase applications saw a nearly 27% increase, while the refinancing index jumped by 43.5%. Although these figures are adjusted for seasonal fluctuations, they are often subject to significant swings during the holiday period.
On an unadjusted basis, purchase applications declined by 1.8% compared to the same week a year earlier.
The MBA's weekly survey, conducted since 1990, includes responses from mortgage bankers, commercial banks, and thrifts. It captures more than 75% of all retail residential mortgage applications in the United States.
