U.S. mortgage rates rose to 6.97%, the highest in more than a year.

U.S. mortgage rates rose last week to the highest level in more than a year, dealing another blow to an already sluggish housing market. Data released Wednesday by the Mortgage Bankers Association (MBA) showed that in the week ended Sept. 11, the contract rate on a 30-year mortgage rose 12 basis points to 6.97%, the highest since May 2025. In February, the rate had fallen to its lowest since 2022, just before the outbreak of the Iran war. Rates have since climbed sharply, partly because higher energy prices intensified inflation concerns. The continued rise in borrowing costs has dampened loan demand. The MBA's purchase indexa measure of loan applicationsedged down 0.8% from the previous week; the refinance index fell 8.8% to its lowest since May 2025. On Wednesday, the market expected the Federal Reserve to raise interest rates for the first time since 2023 to curb inflation. The Fed's decision does not directly affect mortgage rates but could trigger chain reactions in the bond market. Mortgage rates are closely linked to the 10-year U.S. Treasury yield, which rose this week to its highest level in nearly two decades. The MBA survey has been conducted weekly since 1990 and covers mortgage banks, commercial banks and savings institutions. The data cover more than 75% of all U.S. retail residential mortgage applications. Fed Chair Kevin Warsh set out a clear standard on Aug. 28 at the Jackson Hole global central bank symposium: there must be confidence that underlying inflation is moving toward target clearly and quickly enough, otherwise the committee still has work to do. He also noted that credit and loan markets show almost no trace of policy restraint. That stance rewrites the market's policy reaction function from "whether year-over-year inflation is falling" to "whether the trend is fast enough and whether financial conditions are truly tight." U.S. consumer prices rose 0.4% month over month in August and 3.4% year over year; the core index excluding food and energy rose 0.3% month over month, with the core CPI monthly gain exceeding market expectations. The energy component rose 2.1% month over month, energy remained above 16% year over year, and the housing component was up 3.0% year over year, indicating that sticky items have not provided a clear confirmation of cooling. In a high-rate environment, the U.S. housing market continues to show a pattern of "shrinking volume with firm prices." Zillow economists had previously forecast home sales growth of 4.3% for all of 2026, but have now revised that to 1.3% growth for the year, with a 3.5% contraction expected in the fourth quarter. NAR Chief Economist Lawrence Yun pointed out that a high-rate environment naturally dampens willingness to buy homes, but cumulative sales in the first eight months of this year still recorded 1.6% growth, and home prices continued to hit new highs. In June, the median existing-home sale price rose to $440,600, up 1.8% year over year, setting a record high.