09/15/2026
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Thomas J Thompson
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Chief Economist @ Havas | Entrepreneur in Residence @ Harvard
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The Housing Market May Be Headed Back to 7% Mortgages
The Wall Street Journal has a good piece this morning warning that mortgage rates are closing in on 7% again. The 30-year fixed averaged 6.76% last week according to Freddie Mac, while daily measures have already moved above 7%.
I think the concern is justified, and the reason starts in the bond market, where the 10-year Treasury yield crossed 5% this week, its highest level since 2007. The war in Iran, higher energy prices and concerns that inflation and interest rates could remain elevated have added to the pressure. Put these things together and investors lending money for 10 years want to be compensated for that risk with a higher yield.
That matters for mortgages because many home loans are bundled into mortgage-backed securities and sold to investors. Those securities compete with longer-term government debt for investor money, with the 10-year Treasury serving as the main benchmark because most mortgages are paid off, refinanced or replaced when a homeowner moves long before 30 years. Put more simply, if investors can earn around 5% lending to the U.S. government, they are going to demand more to own mortgages. That higher required return works its way back to the rate offered to home buyers, so with the 10-year around 5%, a mortgage around 7% isn't particularly surprising.
Seven percent matters for another reason too. There is nothing economically magical about the difference between 6.99% and 7.00%, but consumers tend to notice round-number thresholds. For a housing market already struggling with affordability, seeing a mortgage rate that starts with a seven could be enough to make some buyers reconsider a purchase they were already stretching to make.
For home buyers, all of that bond-market plumbing eventually becomes a monthly payment. A $400,000 30-year mortgage costs about $2,398 a month in principal and interest at 6%. At 7%, it costs about $2,661. That's an extra $263 every month, or more than $3,100 a year, without getting any more house. Look at it the other way and the consumer choice becomes even clearer. A buyer who can afford roughly $2,400 a month can finance about $400,000 at 6%. At 7%, that same payment supports only about $361,000. The buyer has to put more money down, buy less house, stretch the monthly budget or wait.
My concern is that more buyers choose to wait. That's still a consumer decision, and it doesn't stop with the house. A move that doesn't happen can also mean remodeling, furniture, appliances, movers and other purchases don't happen, or happen later.
