Kobeissi Letter: 30-Year Mortgage Rate Rises to 7.24%
The market commentary account Kobeissi Letter states that the average rate for a 30-year fixed mortgage in the U.S. has risen to 7.24%, the highest in 19 months. The monthly payment for a $500,000 loan has exceeded $3,400; seven months ago, the equivalent monthly payment was about $2,995, with over $4,860 in interest paid in a year. Since late February, rates have cumulatively increased by 125 basis points.
The official weekly figures are lower but show the same trend. The Freddie Mac Primary Mortgage Market Survey indicates that as of September 17, the average rate for a 30-year fixed mortgage is 6.95%, up 19 basis points in one week, the highest since January 2025; the 15-year rate is 6.26%. A year ago, the 30-year rate was 6.26%. This survey only covers conventional conforming loans with a 20% down payment and good credit. Reuters reports this as a 20-month high.
The pricing anchor is long-term government bonds, not overnight policy rates. Lenders price 30-year loans using the yield on 10-year U.S. Treasuries. The 10-year yield has remained around 4.9% in the past two days, while the 30-year cash bond is about 5.3%. In late February, the 30-year mortgage briefly fell below 6%, close to the low point at the end of 2022; since then, rising oil prices and inflation expectations have pushed long-term bonds higher, and mortgage rates have followed. The Federal Reserve just raised rates this week, and mortgage rates had already increased before this hike.
The difference in monthly payments directly cuts purchasing power. For a $500,000 principal, 30-year fixed, excluding taxes, a 7.24% rate results in a payment just over $3,400; if calculated at around 6% from February, the payment is close to $3,000. When rates were about 3% in 2021, the equivalent principal payment could be as low as around $1,700. Homeowners locked into a 3% old loan face an increase of 400 basis points when moving, which continues to freeze the supply of second-hand homes.
The housing market this year is stuck in a cycle of "low transactions, high prices, high rates." New buyers must simultaneously absorb the plateau in home prices and the cost of loans; the refinancing window is essentially closed. Conforming loan rates are near 7%, with higher quotes for larger loans and those with slightly weaker credit. For each percentage point increase in rates, the price of homes that can be supported by the same income decreases, putting pressure on intermediaries and builders, while existing homeowners' net worth remains temporarily intact.
The market mechanism is a repricing driven by bonds, not a sudden halt in lending by banks. Sellers must sell mortgage-backed securities at market prices; buyers are first-time homebuyers squeezed by monthly payments and existing homeowners locked into their homes. Beneficiaries are existing homeowners with low-interest old loans and short-term cash; those under pressure are new buyers, brokerage commissions, and the building materials chain reliant on transaction volume. Funds are flowing from housing mortgages to higher-yielding government bonds and money markets, with transaction volume shrinking ahead of a clear decline in home prices.
Source: Public Information
ABAB AI Insight
After the U.S. turned the 30-year fixed loan into a universal financial product, the pricing power shifted from the federal funds rate to the 10-year Treasury and MBS spreads. Lowering rates to below 3% from 2020 to 2021 effectively issued a non-transferable subsidy voucher to existing homeowners; after rapidly raising rates above 7% in 2022, this voucher has locked up the supply of second-hand homes. The 7.24% used by Kobeissi is the market average quote, while Freddie Mac's 6.95% is the weekly average for quality conforming loans, indicating that the window for cheap loans has been closed for about 19 months, not just a single week's noise.
The capital path is "old loans lock in stock, new loans block growth." Lenders package loans into MBS and sell them, with investor compensation following long-term bonds; the Fed's rate hikes only elevate the short end, while mortgage rates have already been driven by oil prices and deficit expectations. Money has not disappeared from the housing system but has shifted from new mortgages to the option value of existing low-interest loans and government bonds. If builders want to sell, they can only buy down rates or lower prices, both of which eat into profits.
Comparisons should be made to 1981 and 2023. During the Volcker era, the 30-year rate reached 18.63%, a time when inflation was not anchored; the current rate above 7% has already frozen transactions once. This time, rates have been raised by 125 basis points without a significant drop in home prices, and the pain point is not the historical highest rates but rather "high prices multiplied by high rates." The industry's position has shifted from a post-pandemic phase of rising volume and prices to a plateau where transaction volume declines first, followed by price adjustments.
Structural judgment indicates a transfer of pricing power. The pricing power has shifted from central bank communication to inflation compensation in the bond market: whoever can control the 10-year rate can unlock housing transactions. The mechanism is that the monthly payment formula is extremely sensitive to interest rates, while home prices are sticky, so the adjustment variable first becomes transaction volume and demand for moving, rather than an immediate nationwide price drop.
ABAB News · Cognitive Law
Locking in low-interest old loans equates to locking in second-hand supply
When home prices do not drop, rate hikes first kill transaction volume
Mortgage rates follow the 10-year rate, not the news conferences