U.S. Mortgage Rates Hit 6.65%, Choking Homebuyer Demand Amid Rising Costs

US mortgage applications declined 2.7% last week from the prior week as the average 30-year fixed mortgage rate increased to 6.65%, the highest level since August 2025, negatively impacting summer home buying.

This marked the first time in 3 weeks that purchase volume fell on a seasonal basis and it also registered below levels from the prior year. The increase in available inventory on the market would suggest that it is not a lack of homes for sale that is deterring buyers, but rather the higher cost of financing of those homes. This is particularly a challenge for first-time home buyers, for whom cost is a major consideration.

However, the refinancing business is going in the opposite direction. Total volume rose 4% from the prior week and by 7% from the same time last year. Here, FHA and VA refinancing business in particular was very strong. The share of mortgage refinancing rose to 43.2% (compared to 40.6% in the prior week) and thus remained at a very high level. Adjustable rate mortgages were also very popular again this week, with average interest rates slightly decreasing from the week before. For some borrowers, these products could therefore be an interesting alternative to fixed rate loans. Note, however, that the average interest rates for adjustable rate mortgages are currently still much higher than in 2024.

Refinancing accounted for 43.2% of mortgage activity last week, up from 40.6% the week prior. Adjustable rate mortgages accounted for a small percentage of applications and had average rates that declined slightly. As mentioned above, 15-year fixed mortgages as well as jumbo loans saw increases in average borrowing costs as well.

Borrowing costs continued their upward trend. Fifteen-year fixed mortgage rates climbed to 5.76%, the highest level in over two years while jumbo mortgage rates averaged 6.31%. In a related note, elevated Treasury yields are likely to keep mortgage rates high, lowering the level of affordability and reducing homeowner turnover as many homeowners are tied down in their low-rate mortgage.

But it’s worth noting that this week’s numbers are affected by the holiday reporting period and it would be wrong to interpret them at face value. Higher rates of late will at some point begin to get through to sellers and prompt some price reductions or introductions of incentives. But for now, at least, elevated rates of late will likely keep buying activity from regaining strong momentum through the summer.

Practical Takeaways for Buyers & Investors:

1. When modeling the rental yield for an investment property, use higher mortgage interest rates than historic averages to more accurately price out a purchase.
2. Homebuyers with a long-term perspective could consider going with an ARM. As of late, the average rate for such a loan has recently dropped slightly and is definitely worth looking into.
3. Track FHA and VA refinance originations for insights on how homeowners are strategizing in the current market.
4. In markets where inventory is up, sellers’ prices could go down as they become more open to providing incentives to attract buyers.

The Final Takeaway:

Beware that while lawmakers are doing their part to increase supply of homes, in the meantime, high finance cost is negatively impacting the U.S. residential real estate market.