Fed Rate Hikes Add Further Pressure: U.S. Mortgage Rates Climb for Fourth Straight Week, Approaching 7%; Housing Market Recovery May Be Further Delayed

U.S. Housing Market Faces Renewed Pressure from High Interest Rates. Data released by Freddie Mac on Thursday showed that as of September 17, the average rate on a 30-year fixed mortgage in the U.S. rose to 6.95%, up from 6.76% the previous week, marking a fourth consecutive weekly increase and the highest level since January 2025. By comparison, the rate stood at just 6.26% a year earlier. For prospective homebuyers who had hoped for a gradual decline in mortgage costs in 2026, mortgage rates once again approaching 7% undoubtedly represents new pressure. This is especially true after the Federal Reserve announced just Wednesday a 25-basis-point rate hike, further cooling market expectations for a notable short-term decline in borrowing costs. On September 16, the Federal Reserve voted unanimously, 12-0, to raise the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. This was the Fed's first rate hike since July 2023. The Fed said U.S. economic activity continues to expand at a solid pace, but inflation remains elevated, and this policy action is intended to help bring inflation back to the 2% target in a more timely manner. Double Squeeze from Home Prices and High Rates Worsens Housing Affordability As mortgage rates approach 7%, U.S. housing affordability is already under considerable strain. According to estimates by Intercontinental Exchange Inc., based on the average U.S. home price of $440,000, a typical household currently needs to devote about 31% of median household income to mortgage payments, the highest share since July 2025. Meanwhile, U.S. homebuilder confidence fell this month to its lowest level in a year, further reflecting how high financing costs are weighing on the housing market outlook. Mortgage rates are typically influenced by long-term U.S. Treasury yields. After the Fed's rate hike, the 10-year Treasury yield, an important reference for U.S. mortgage pricing, pulled back somewhat but remained near the elevated level of 5%. This means that even if Treasury yields decline in the short term, the housing financing environment remains tight. Mischa Fisher, chief economist at Zillow Group, said the recent rapid rise in rates is hitting an already sluggish housing market, with home sales falling further year over year from a low base. However, he believes that if confidence grows that inflation is being brought under control, mortgage rates are more likely to decline in 2027, which would help put the housing market recovery back on track. U.S. Housing Transactions Remain Sluggish; August Pending Home Sales Fall 4.7% Year over Year The drag from high mortgage rates on real estate transaction activity is already evident. Data released Thursday by the National Association of Realtors (NAR) showed that pending home sales in August rose only 0.3% month over month and fell 4.7% year over year. On a monthly basis, sales increased in the South and West but declined in the Northeast and Midwest; on a year-over-year basis, all four major U.S. regions posted declines. NAR Chief Economist Lawrence Yun said that despite rising mortgage rates, some buyers continued to sign purchase contracts in August, though the U.S. housing market overall remains sluggish. Employment and income growth had originally improved household purchasing power, but high mortgage rates have offset a large portion of that benefit. Nationwide, home contract signings remain about 30% below pre-COVID-19 pandemic levels. Previously released data also showed continued weakness in the housing market. U.S. existing home sales in August fell 2.0% month over month to a seasonally adjusted annual rate of 3.98 million units, down 1.2% year over year; the median existing home sale price rose 1.6% year over year to $429,100. NAR Sharply Cuts This Year's Sales Growth Forecast As interest rate trends continue to exceed previous expectations, even previously optimistic real estate analysts have begun lowering their forecasts for the 2026 U.S. housing market. At the end of last year, NAR Chief Economist Lawrence Yun had projected that U.S. existing home sales could grow 14% in 2026 as average mortgage rates gradually moved toward 6%. But amid changes in the macroeconomic and geopolitical environment, he sharply cut his forecast for this year's existing home sales growth to 4% in June, a projection based on an assumption of an average mortgage rate of about 6.5% in 2026. Now the 30-year mortgage rate has risen to 6.95%, just a step away from 7%. Yun said that when mortgage rates briefly fell to around 6% earlier this year, it did prompt some previously hesitant potential buyers to reconsider entering the market; but as rates climb back toward 7%, some people who had been considering buying may once again conclude that housing is beyond their budget. With the Federal Reserve re-entering a rate-hiking cycle and mortgage rates rising for four consecutive weeks, housing affordability is under further pressure, and the long-awaited recovery in the U.S. housing market may continue to be delayed.