After the Rate Hike, U.S. Mortgage Rates Break Above 7%

On September 16, the Fed raised rates by 25 basis points. Intuitively, with the increase now delivered and markets having anticipated it for so long, mortgage rates might be expected to settle down. Instead, the opposite happened.

Mortgage rates broke above 7% after the hike

On September 24, the average U.S. 30-year fixed mortgage rate rose to 7.03%, compared with 6.30% a year earlier. It had last exceeded 7% in January 2025, 20 months ago. At the end of February this year, the rate briefly fell to 5.98%. Now it is back above 7%.

Why are mortgage rates still rising after the Fed has already raised rates?

Mortgage rates follow the long end

The Fed directly sets short-term interest rates. Thirty-year mortgages follow long-term rates more closely.

Between September 23 and 24, the 10-year Treasury yield rose from 5.11% to 5.18%, while the 30-year yield rose from 5.40% to 5.47%. A completed rate hike therefore does not mean the price of long-term borrowing stops changing. Once that cost reaches 7%, the effects begin to show up in housing.

Sales rise where prices fall, and fall where prices keep rising

In August, the median U.S. new-home price fell 5.8% from a year earlier, while sales reached an eight-month high. Existing-home prices, by contrast, had risen year on year for 38 consecutive months, while sales fell to a 14-month low.

More strikingly, new homes had been cheaper than existing homes for six consecutive months. The gap in August was $35,400. Builders were also offering concessions: 38% cut prices, and 66% offered various purchase incentives.

A clear contrast emerged. New-home prices were falling and sales were recovering; existing-home prices were still rising and transactions continued to weaken.

What does a 7% mortgage rate mean for an ordinary buyer? The monthly payment makes it clear.

How much more does the monthly payment cost?

Using August's median existing-home price of $429,100, a 20% down payment, and a 30-year loan, a 7.03% interest rate produces a monthly payment of about $2,291.

At the 6.30% rate a year earlier, the monthly payment would have been about $2,125. The same home now costs $166 more each month, or close to $2,000 a year. Compared with this February's low of 5.98%, the monthly payment is $237 higher.

What does 7% really change?

This explains the divergence described above. The homes are the same, but buyers have a limited amount available for mortgage payments each month. The higher the interest rate, the larger the monthly payment on the same property.

If home prices do not adjust, fewer buyers can afford them. With fewer buyers, homes naturally become harder to sell.

The pressure created by a 7% mortgage rate therefore comes back to home prices. Sellers must either wait longer or adjust their asking price.