The average 30-year fixed-rate mortgage rose to 7.12% last week, the highest level since May 2024, according to data from the Mortgage Bankers Association (MBA). The increase, reported for the week ending September 18, marked a 15-basis-point jump from the previous week’s 6.97%.
Applications for mortgages declined for the third consecutive week, with the MBA’s seasonally adjusted index showing a 1.5% drop in overall loan demand. Purchase applications fell 1% from the prior week and were 11% lower than the same period last year. Refinancing activity also weakened, sliding 3% weekly and dropping 62% year-over-year—the slowest refinancing pace since February 2025.
Borrowers pivot to adjustable-rate mortgages
With fixed-rate loans becoming less affordable, 9.8% of mortgage applicants opted for adjustable-rate mortgages (ARMs) last week, up from 8.4% the prior week. The average rate for 5/1 ARMs—which offer a fixed rate for the first five years before adjusting—fell to 6.10%, more than 1 percentage point lower than the 30-year fixed rate. Industry analysts noted this shift reflects borrowers seeking short-term savings amid rising long-term costs.
Federal Reserve and market forces drive rates higher
The Federal Reserve raised its benchmark interest rate by 25 basis points last week, bringing the target range to 3.75%–4.00%. Nearly all Fed policymakers signaled at least one additional rate hike before year-end. Mortgage rates typically track U.S. Treasury yields, which have surged due to inflation concerns tied to the U.S.-Israeli military strikes against Iran in late February. The 10-year Treasury yield reached 5% midweek, up from 3.96% before the conflict began, contributing to the rise in borrowing costs.
Housing market faces affordability challenges
Higher mortgage rates compound existing affordability pressures, as home prices remain near record highs. Real estate professionals report a sharp pullback in buyer activity, with the typically slower fall season now underway. Analysts warn that persistent rate volatility could further dampen origination growth, particularly if elevated rates persist.
Industry reactions and long-term outlook
Mike Fratantoni, the MBA’s senior vice president and chief economist, attributed the decline in loan demand to the sharp rise in fixed rates and noted that borrowers are increasingly prioritizing short-term affordability. Richard Shane, head of consumer and specialty finance research at J.P. Morgan, cautioned that affordability challenges and rate volatility could stall growth in mortgage originations if high rates continue.
The Federal Reserve’s next policy meeting, scheduled for late October, will be closely watched for further signals on interest rate adjustments. Meanwhile, Freddie Mac is set to release its own mortgage rate data on September 26, which may provide additional context on market trends.