Mortgage Rates Hold Near 7.4% as Purchase Applications Fall 16%

What happened

American homebuyers are paying more to borrow than at any point in roughly three years, and so far nothing points to relief. In late September, Freddie Mac's weekly average for a 30-year fixed loan rose above 7% for the first time since January 2025. It reached 7.03%, up from 6.95% the week before and 6.30% a year earlier, after five straight weekly increases.34 That was the highest reading since mid-January 2025, when the average was 7.04%.3

The 7% line was only a waypoint. By the week ending October 8, Freddie Mac's average had climbed to 7.40%.10 The October 15 reading was unchanged at 7.4%, which Freddie Mac says is the highest since October 2023.8 The Mortgage Bankers Association's contract-rate survey runs a bit higher. It put the conforming 30-year rate at 7.49% in the week ending October 2 and 7.50% the week after, its highest since November 2023.1113 Daily figures from Zillow, reported by U.S. News, showed the 30-year purchase rate at about 7.53% on October 15.9

The speed of the move stands out. Before the Iran war began in February, the 30-year average briefly fell below 6%. Some forecasters had expected a housing rebound this year, and the opposite has happened.14

Why rates jumped: the bond market is setting the pace

The coverage agrees on the cause. Mortgage rates follow the 10-year Treasury yield, and that yield has risen sharply.12 It passed 5% on September 22 and reached about 5.19% two days later.2 By October 7 it hit 5.35%, which mortgage-industry coverage describes as the highest since 2002.7

Outlets disagree slightly about how long it has been since yields were this high. Some September reports said the highest since 2007, while NPR said more than two decades.16 The October data settled the question by passing those earlier peaks.

Several forces are pushing yields up together. Oil prices tied to the Iran conflict have revived inflation fears.26 September's Consumer Price Index showed annual inflation at 3.7%.10 At its September 15–16 meeting, the Federal Reserve raised its benchmark rate by a quarter point to a 3.75%–4% range, its first increase of the year. Policymakers signaled at least one more hike could come before year-end.26 Analysts also point to structural pressure: large federal deficits mean more Treasury issuance, and AI companies are borrowing heavily in the corporate bond market.89

The International Monetary Fund raised the stakes in its October Global Financial Stability Report. It warned that sovereign yields could rise in a disorderly way. It said term premiums, the extra return investors demand for holding longer-dated debt, are at the upper end of historical ranges. It also flagged leveraged hedge-fund positions in Treasuries and a jump in bond issuance by the largest tech companies.7 Cotality chief economist Selma Hepp summed up the situation by saying it is really the bond market, not the Fed, that now sets borrowing costs.7

The implication is that a dovish Fed alone would not bring mortgage rates down. As long as investors demand a premium to hold long-term U.S. debt, rate cuts would do little for borrowers.

Mortgage demand: buyers are pulling back

The MBA's weekly application data show demand falling. In the week ending October 2, total applications fell 4.2%. The refinance index dropped 8% and was 56% below a year earlier, and the unadjusted purchase index was down 15% year over year.11 The next week, total applications fell another 2.7%. Seasonally adjusted purchase applications dropped 4%, leaving the unadjusted purchase index 16% below a year earlier.13

MBA deputy chief economist Joel Kan said FHA purchase applications fell the most, down 6% in early October. That matters because FHA loans serve many first-time and lower-down-payment buyers.11 Purchase activity declined across every loan type that week.12

Borrowers are also turning to riskier loan structures. The share of applications for adjustable-rate mortgages (ARMs) rose to 10.5% in the week ending October 9, the highest since October 2025, as buyers looked for lower starting payments.13 A 5/1 ARM carried an average contract rate of 6.54%, well below the fixed rate. The tradeoff is that payments can rise once the fixed period ends.17 Other data point the same way. The credit-pull-based Xactus Mortgage Intent Index held flat at 102.7 after two weeks of steep declines, but it remains about 20% below a year earlier.13

The 7% level also appears to weigh on buyers psychologically. Bright MLS chief economist Lisa Sturtevant called it a foreboding barrier that could chill fall sales.4 Realtor.com's Anthony Smith made a similar point, adding that fall and winter are usually good times to buy.1

Home sales: low volume, and more weakness ahead

September's existing-home sales report from the National Association of Realtors looks somewhat better than it is. Sales rose 1.5% from August to a seasonally adjusted annual rate of 3.99 million but were 2.2% lower than a year earlier.21 Part of the monthly gain came from revising August down to 3.93 million. NAR chief economist Lawrence Yun said August and September were the two slowest months of the year.23 Sales fell from a year earlier in every region.21 The roughly 3.99 million pace remains far below the 5.2 million or so considered historically typical.24

The worst may still be ahead, because closings lag contracts. Buyers who closed in August and September probably locked in rates earlier in the summer, when the 30-year average was around 6.5%.27 Freddie Mac's September average was 6.86%, well below the rates buyers face now.30 Those rates have not yet shown up in the closing data. The analysts at CalculatedRisk expect existing-home sales to slow in the coming months as rates approach 7.5%.16

Yun described the problem as weak demand rather than limited supply.23 Inventory rose to 1.60 million homes, the most since November 2019 and equal to 4.8 months of supply.24 Altos Research data showed single-family listings up 4.8% from a year earlier but still about 5% below 2019 levels.16 Homes took a median 33 days to sell in September, up from 31 in August.23 The mix of buyers is shifting too: investors and second-home buyers made up 20% of sales, up from 15%, and first-time buyers accounted for 31%.23 Only 8% of agents surveyed expect buyer traffic to rise over the next three months.23

Home prices: records on paper, losing momentum

The price data can be read two ways. NAR's September median of $417,500 was up 1.3% from a year earlier, the highest September figure on record and the 39th straight month of annual gains.2123 Redfin's measure also rose 1.3% from a year earlier, to a median of $393,895, while the number of homes sold fell 4.3%.22

The month-to-month figures show prices cooling. Haver Analytics noted that the September median fell 2.4% from August, the lowest level since April. August's median was also revised down, to $427,700 from $429,100.30 Some of that decline is seasonal, and NAR cautions that only year-over-year comparisons are valid for its median price.21 Still, annual gains of around 1% are small, and the West has already turned negative at -0.3%. The Northeast is still up 4.7%, with multiple offers in some markets.23 Builders are offering rate buydowns and other incentives, which has pushed the median new-home price below the median existing-home price in recent months.27

Prices have been slow to fall partly because owners are holding on to cheap loans. About half of homeowners with a mortgage pay less than 4%, and many will not give that up for a 7% loan. That keeps supply in check and supports prices.1

The forecast: higher for longer

Forecasters revised their outlooks sharply within a single month. In its October outlook, Fannie Mae projected a 30-year rate of 7.4% for the fourth quarter and 7.5% for all of 2027. A month earlier, it had forecast 6.8% and 6.7%.10 Fannie Mae now expects the 10-year Treasury yield to stay around 5.3% through 2027.10 The MBA is slightly less pessimistic but still sees rates above 7% through next year, easing to 7.1% by the end of 2027.10

Economists interviewed by Money largely agreed: Realtor.com's Joel Berner expects a range of 7.2% to 7.8% for the rest of 2026, and Sturtevant expects about 7.5%.8 NAR's Yun had already told readers to treat 7% as the new normal.4 Hepp warns of a worse outcome. She says 10-year yields in the high 5s or near 6% would push mortgage rates to 7.5%–8%, and she has not ruled out 9%.7

The cost is concrete. On a $320,000 loan, a rate of 7.5% instead of 6.7% adds $173 to the monthly principal-and-interest payment.10 Lennar's CEO said recently that many buyers are "clearly stretching" to afford a home.4

The bottom line

On the current data, housing has moved from a stuck market to one where demand is shrinking. Purchase applications are about 16% below last year. Closings will soon reflect rates near 7.5%. Inventory is the highest in nearly seven years, and annual price gains are close to zero. Buyers willing to borrow at today's rates will have more homes to choose from and more room to negotiate, a point NPR also made.1 Lower rates, though, depend on the bond market, which in turn depends on oil prices, inflation readings and federal borrowing. If those factors don't ease, the weakest stretch of this housing slowdown is likely still ahead.