Mortgage rates jump to nearly 7% after Fed rate hike — highest in nearly two years

• The 30-year fixed mortgage rate rose to 6.95% from 6.76% the previous week, while 15-year rates climbed to 6.26%, with the 10-year Treasury yield breaching 5% for the first time since 2023
• The Fed raised its key interest rate for the first time in three years and signaled potential additional hikes, which economists warn will keep mortgage rates at or above the 7% 'psychological and financial barrier'
• Higher rates are sidelining homebuyers in a market already constrained by elevated home prices, chronic housing shortages, and flat sales since the pandemic-era low rates ended in 2022

Summary

Key Developments:

U.S. mortgage rates surged to 6.95% for 30-year fixed-rate mortgages as of Thursday, marking the fourth consecutive weekly increase and the highest level since January 30, 2025 (over 19 months). This represents a significant jump from 6.76% the previous week and 6.26% one year ago. The 15-year fixed rate also climbed to 6.26% from 6.09%, compared to 5.41% a year earlier.

Market Drivers:

The rate surge follows the Federal Reserve's decision Wednesday to raise its key interest rate for the first time in three years to combat surging inflation. The 10-year Treasury yield, which guides mortgage pricing, breached 5% Monday for the first time since 2023 (up from 3.97% in late February) and stood at 4.94% Thursday. Rising borrowing costs are attributed to inflation expectations and economic uncertainty stemming from the U.S.-Iran war that began in late February.

Market Implications:

Higher rates add hundreds of dollars monthly to borrower costs, significantly reducing purchasing power and driving prospective buyers to delay home purchases. Economists warn that rates above 7% create a "psychological and financial barrier" that will severely impact affordability and sideline buyers. The housing market has been in a slump since 2022, with sales of previously occupied homes remaining flat last year at historically low levels.

Outlook:

The Fed signaled potential additional rate hikes later this year, suggesting mortgage rates will likely remain at or above 7%, further constraining an already-challenged housing market affected by elevated home prices and chronic housing supply shortages.