Mortgage Rates Reach 7.5 Percent as Home Buyers Retreat

Rising borrowing costs are putting renewed pressure on the U.S. housing market, even as competition among home buyers eases in many parts of the country. Mortgage rates have climbed to around 7.5 percent, a three-year high, prompting buyers to pull back while home sales face a potential sharp decline.

Reports published by The Washington Post and Yahoo Finance on October 12 describe a market in which purchasing a home has become less competitive but more expensive to finance. Buyers in many areas no longer face the same pressure to outbid multiple rivals or waive home inspections, yet lower competition has not brought them back in large numbers.

According to Yahoo Finance, mortgage rates rose by a full percentage point in just over a month. September home sales appeared poised for a steep downturn as higher financing costs weakened demand.

The increase has coincided with a sharp rise in the 10-year Treasury yield, a benchmark that strongly influences mortgage rates. Economists cited by Yahoo Finance point to changing expectations for inflation and economic growth as investors reassess the outlook for the U.S. economy and global markets.

Daryl Fairweather, chief economist at Redfin, said the recent market shift reflects a broader change in economic conditions.

"There's clearly a trend. There's something meaningful happening with us moving into a higher-for-longer economy," Fairweather said.

The outlook has raised concerns that mortgage rates could approach 8 percent if bond yields continue climbing. Although future movements remain uncertain, the current combination of economic and geopolitical pressures has increased the possibility that borrowing costs will remain elevated for longer.

Energy prices and uncertainty surrounding Iran are among the factors affecting investor expectations. Mortgage rates moved higher in the weeks following the U.S. attack on Iran on February 28, as markets weighed the potential effects of rising oil prices on inflation.

Although oil prices have retreated from their peaks, concerns persist that higher energy costs could spread through supply chains and raise prices across the economy. Jake Krimmel, senior economist at Realtor.com, said geopolitical uncertainty has contributed to the increase in borrowing costs.

"The geopolitical uncertainty is a huge part of it. We're talking about supply shock. That doesn't just touch oil, but probably everything else with trade," Krimmel said.

U.S. Treasury Secretary Scott Bessent has also attributed much of the increase in Treasury yields and mortgage rates to energy prices. Efforts to lower bond yields through buybacks have had little effect, according to Yahoo Finance.

Speaking on Monday, Bessent expressed confidence that energy costs and mortgage rates could decline once the conflict subsides.

"I don't know if this conflict's going to end next week, next month, in two months, but I believe on the other side of this, energy prices will be much lower and interest rates, mortgage rates will come back down," Bessent said.

However, economists cited by Yahoo Finance caution that energy prices alone do not explain the rise in borrowing costs. The U.S. economy has continued to show growth that typically puts upward pressure on bond yields and mortgage rates, adding another challenge for prospective home buyers.