The average 30-year mortgage rate crossed 7% as the 10-year Treasury yield rose to about 5.16%. The three-point gap between the policy rate and mortgage rates shows where the tightening is coming from.
A home buyer locking in a 30-year loan this week pays roughly three percentage points more than the Federal Reserve's own benchmark rate. That difference is being set in the bond market.
The average 30-year fixed rate rose to 7.03% this week. It had not been above 7% since the start of last year.
Mortgage rates are priced off longer-term Treasury yields, and the 10-year note, the usual benchmark, climbed to about 5.16% on Thursday, its highest level since 2007. The 30-year bond, meanwhile, reached about 5.45%, its highest since 2004.
The Fed's benchmark sits in a range of 3.75% to 4%. The spread between the average mortgage rate and the 10-year yield is about 1.87 percentage points.
That distinction matters for how long the pressure could last. A Fed decision can be reversed at a single meeting. Long-term yields respond to a wider set of forces, including inflation expectations, government borrowing and global bond selling, and this week those forces have all pushed in the same direction. Bond yields rose in Japan, Britain and Germany on Thursday alongside Treasuries.
The bigger issue is not whether the Fed raises rates again, said Jason Stephens, founder of Evertern Wealth, but "how long rates remain elevated and what a 10 year Treasury above 5% eventually does to housing, corporate borrowing, private markets, and equity valuations."
For households, the timing is awkward. Gasoline averages $4.48 a gallon, and fuel costs have already squeezed budgets. A 7% mortgage rate adds to the cost of the largest purchase most families make, and savings offer less of a cushion than they did. Americans set aside just 2.6% of their income in April, the smallest share since 2022.
The next read on buyers is the government's report on August new home sales, which economists expected to show an annual pace of 615,000, up from 607,000 in July. Mortgage applications over the coming weeks will show whether buyers are pulling back at the new level. If the 10-year stays above 5%, 7% mortgages stop being a spike and become the market.