US mortgage rates touch 7% amid Iran war, inflation; existing home sales fall 2%

The US housing market is encountering fresh pressure as mortgage rates inch closer to the 7% mark, exacerbating affordability issues for potential buyers who are already facing skyrocketing home prices and an uncertain economic landscape. Last week, the average rate on a 30-year fixed mortgage reached 6.76%, but daily rates have since surpassed 7%, according to Mortgage News Daily, which utilizes a distinct methodology, The Wall Street Journal reported.

While the 7% threshold does not inherently signal a significant change in affordability, economists contend that it may further dissuade buyers who have already been hesitant to enter the market. Michael Fratantoni, chief economist at the Mortgage Bankers Association, told The Wall Street Journal, "A jump in rates like this will certainly cause [prospective home buyers] to pause; they may not go ahead and put in that contract or apply for the loan."

Mortgage rates last reached the 7% threshold in January 2025, according to The Wall Street Journal, but have not sustained above that level for a prolonged period since the second half of 2023. Prior to 2022, 30-year mortgage rates had not been above 7% since 2001. The surge in rates is primarily attributed to the Iran war, persistent inflation concerns, and increasing US deficits, all of which have contributed to a housing market already grappling with sluggish sales.

The Federal Reserve is scheduled to raise its benchmark rate by Wednesday for the first time in three years. This move could either push mortgage rates down if it instills confidence in markets regarding inflation, or raise them further if investors perceive inflation risks worsening.

The uptick in borrowing costs comes amid weak existing-home sales, with the National Association of Realtors reporting a 2% decline in August sales to a seasonally adjusted annual rate of 3.98 million, the lowest level since June of the previous year. The confluence of high prices and borrowing costs poses a particular challenge for prospective buyers, as even a modest increase in mortgage rates can substantially escalate the total interest paid over a 30-year loan.

Moreover, buyers may find it difficult to rely on refinancing in the near term if rates remain elevated. Earlier this year, a brief dip in rates below 6% sparked a surge in buyer interest and sparked optimism about a housing-market recovery. However, rates have surged sharply since the US and Israel struck Iran and have continued to climb in recent weeks due to a bond-market selloff.

Weak demand is increasingly compelling some sellers to reconsider listing their properties for sale. Ng noted that more sellers are opting to wait rather than accept lower offers in a weak market. Despite the current mortgage rates, a buyer might face a monthly mortgage payment of nearly $5,000, as reported by The Wall Street Journal.

On the brighter side, inventory appears to be improving. Unlike during the housing slump of 2023, when homeowners carrying rates of just 2% or 3% were reluctant to sell due to the prospect of a more expensive loan, current inventory levels are nearing pre-pandemic norms. However, a return to 7% mortgage rates could undermine this positive development.

Homeowners with exceptionally low existing mortgage rates may once again feel no urgency to sell, potentially diminishing the supply of homes available to buyers. Higher borrowing costs could also adversely affect new-home construction, as builders are increasingly offering mortgage-rate discounts to lure buyers in the sluggish market.

As rates rise, these incentives become more expensive, potentially curbing builders' profits and their inclination to increase construction. Economists do not anticipate mortgage rates reverting to the exceptionally low levels witnessed during the pandemic any time soon.