Mortgage Rates Hit 7% as Bond Market Drives Higher Borrowing Costs

The average 30-year mortgage rate has reached a new high of 7.03% following the Federal Reserve's recent rate hike and a bond selloff. According to Freddie Mac's latest Primary Mortgage Market Survey, the average 30-year fixed mortgage rate rose from 6.95% last week to 7.03% as of September 24.

The recent increase marks the fifth consecutive weekly rise in the 30-year rate and leaves borrowing costs above the 6.30% average seen a year ago. The immediate cause is not solely the Federal Reserve, but rather the bond market, which saw the 10-year Treasury yield finish at 5.17% on September 25 after reaching even higher levels earlier in the week.

Lenders set mortgage rates based on longer-term Treasury yields and mortgage-backed securities, making the 10-year Treasury a crucial indicator for borrowers. The recent bond selloff has been driven by strong economic data, elevated energy prices, inflation concerns, and heavy government borrowing, pushing the 10-year yield above 5%.