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