US Mortgage Rates Cross 7% Even as New-Home Sales Rise

The average rate on a 30-year fixed US mortgage rose to 7.03% in the week to 24 September, Freddie Mac said, crossing 7% for the first time in more than a year. The rate was 6.95% a week earlier and 6.30% a year ago. The average 15-year fixed rate increased to 6.42% from 6.26%.

Daily market data show rates rising further. Mortgage News Daily put the average 30-year rate at 7.49% on 25 September, up 30 basis points in a week and up from 6.75% on 26 August. Borrowing costs are now closing in on the roughly 7.8% peak reached in late 2023.

Why rates are rising

Mortgage rates track the 10-year Treasury yield, which closed at its highest level since 2007 this week amid a broad sell-off in global bonds. The Federal Reserve raised its policy rate by 25 basis points on 16 September, and markets are pricing in another increase in October as energy-driven inflation persists. With lenders pricing new loans off higher long-term yields, the relief homebuyers enjoyed earlier in the year has reversed.

Freddie Mac chief economist Sam Khater said the housing market was being supported by a solid labour market. Realtor.com senior economist Anthony Smith noted that a 7% rate matters as much psychologically as financially, since many buyers treat it as a line in the sand.

New-home sales surprise on the upside

Sales of newly built homes rose in August despite higher borrowing costs. The US Census Bureau said on 24 September that new single-family homes sold at a seasonally adjusted annual rate of 684,000, up 6.4% from 643,000 in July and 2% below the 698,000 pace a year earlier. The increase beat market expectations, though the Census Bureau said the monthly change was not statistically significant.

Prices told a different story. The median sale price of a new home was $393,700, up 0.4% from July but 5.8% lower than a year ago. The average price fell 9.1% on the month to $478,700. Inventory stood at 483,000 homes, or 8.5 months of supply at the current sales pace, down from 9.0 months in July.

Builders buy volume with discounts

The sales gain came at a cost to margins. According to Inman, 38% of builders cut prices in September, up from 35% the previous month, and 66% offered incentives such as mortgage-rate buydowns, the highest share since December. The average price cut has held at 6% for six straight months.

Builders are now pricing new homes well below existing properties. The median existing single-family home sold for $434,800 in August, according to the National Association of Realtors, $41,100 above the new-home median. Large builders have used their scale to offer rate buydowns that owners of existing homes cannot match, helping them win buyers even as borrowing costs rise.

Why it matters for business and investors

Housing is one of the most rate-sensitive parts of the US economy, and a slowdown feeds into demand for construction materials, appliances, furniture and home-improvement products. Rates above 7% will test builders’ appetite for subsidising buyers, and listed homebuilders’ margins are likely to come under pressure in the coming quarters. Mortgage lenders and servicers face lower refinancing volumes, while banks with large home-loan portfolios will be watching credit quality closely.

For Indian businesses, the link is indirect but real. US housing activity drives demand for exports such as tiles, stone, furniture, home-furnishing textiles and building products. More broadly, the same rising US yields behind higher mortgage rates are drawing foreign capital away from emerging markets, including India.

The gap between the two mortgage measures is worth understanding. Freddie Mac’s weekly survey captures rates on applications submitted over the preceding days, so it tends to lag sharp moves in the bond market. Mortgage News Daily’s index updates daily from lender rate sheets and reacts faster. A 30-basis-point jump in the daily measure in a single week suggests Freddie Mac’s headline figure is likely to rise again unless Treasury yields ease. Buyers who locked in rates earlier in September will have saved a meaningful amount on monthly repayments.

What happens next

Mortgage rates will keep tracking the bond market and the Fed. August PCE inflation data on 30 September and the September jobs report on 2 October will shape expectations for an October rate hike. Freddie Mac publishes its next weekly survey on 1 October, and the Census Bureau will release September new-home sales on 27 October. If the 30-year rate moves towards 7.5% in Freddie Mac’s survey, analysts expect builders to deepen incentives, and sales momentum could fade heading into winter.