The average interest rate for 30-year fixed-rate mortgages in the United States soared to over 7% last week, reaching the highest level in over two years. This led to a downturn in loan demand once again, with more borrowers opting for higher-risk loans.
According to data released by the Mortgage Bankers Association (MBA) on Wednesday, September 23, the average interest rate for 30-year fixed-rate mortgages in the U.S. rose to 7.12% in the week ending September 18, marking the highest point since May 2024.
The MBA’s seasonally adjusted index shows that due to the increase in interest rates, mortgage applications for home purchases in the U.S. last week decreased by 1.5% compared to the previous week.
The situation has slightly improved this week, with mortgage applications for home purchase decreasing by 1% from the previous week, and dropping by 11% compared to the same period a year ago.
Refinance applications for home mortgages decreased by 3% this week, a 62% drop from the same week one year ago. This is the lowest level since February 2025.
The fall housing market is the second busiest market of the year, only behind spring. Despite being in the peak season for home buying, real estate agents have noticed a significant decline in market activity due to the rising interest rates. Homebuyers and existing homeowners are seeking ways to save on expenses, even turning to riskier adjustable-rate mortgages (ARMs).
Currently, housing prices remain near historic highs, while the increase in interest rates further raises borrowing costs for homebuyers. Mike Fratantoni, Senior Vice President and Chief Economist at the MBA, stated in a release that as fixed rates continue to climb, more buyers are opting for riskier adjustable-rate mortgages due to their lower initial rates.
According to data provided by Fratantoni, the share of ARM applications in total mortgage applications reached 9.8% last week, up from 8.4% the week before. In the early stages of the COVID-19 pandemic, when mortgage rates hit historic lows multiple times, the ARM share was only slightly above 3%. ARMs can maintain fixed rates for the initial few years, with terms of up to 10 years, but after the fixed rate period ends, the mortgage rate will adjust based on market conditions at that time.
According to another survey by Mortgage News Daily, mortgage rates began to slightly decrease this week due to falling oil prices leading to lower bond yields. Mortgage rates typically follow the yield on 10-year U.S. Treasury bonds, which is an important benchmark for pricing mortgages set by lending institutions.