- Higher borrowing costs and elevated home prices are keeping pressure on US housing affordability
US mortgage rates have climbed to their highest level since January 2025, while home prices remain near record highs, putting additional pressure on prospective buyers. The 30-year fixed mortgage rate averaged 6.95% on Sept. 17, up from 6.76% a week earlier and 6.26% a year ago, according to Freddie Mac. The 15-year fixed rate also increased to 6.26% from 6.09% a week earlier.
The increase came just after the Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 3.75% to 4% on Sept. 16. The Fed said inflation remained elevated and its decision was intended to support a return toward its 2% inflation goal.
Why Are Mortgage Rates Rising?
Mortgage rates do not move directly with the Federal Reserve's benchmark rate. They are influenced heavily by longer-term Treasury yields, inflation expectations and conditions in financial markets. That distinction matters because mortgage rates can rise even when expectations for future Fed policy are changing in the opposite direction.
The latest move comes as investors continue to assess inflation, energy prices and economic growth. The Federal Reserve's September projections put median PCE inflation at 3.7% for 2026, before declining to 2.3% in 2027 and 2.1% in 2028. The median projected federal funds rate for the end of 2026 was 4.1%.
For borrowers, the immediate effect is straightforward: a higher mortgage rate increases the cost of financing a home.
How Much Do Homes Cost in the US?
Home prices remain elevated even as sales activity has weakened. The median existing-home price reached $429,100 in August, up 1.6% from $422,400 a year earlier, according to the National Association of Realtors. That marked the 38th consecutive month of year-over-year price increases.
The national figure also masks significant regional differences. The median existing-home price was $556,900 in the Northeast, $340,400 in the Midwest, $366,500 in the South and $619,100 in the West, according to NAR's August report. Prices rose year over year in the Northeast, Midwest and South, while the West recorded a 0.2% decline.
The combination of higher financing costs and elevated purchase prices is making the monthly cost of homeownership an important consideration for buyers.
Are Home Prices Falling?
No, home prices are not falling, at least not nationally. Although sales have slowed, the median existing-home price continued to increase on a year-over-year basis in August. At the same time, the supply of homes available for purchase has improved. NAR reported 1.62 million unsold homes in August, up 3.2% from July and 5.9% from a year earlier. That amounted to 4.9 months of supply, the highest level in more than a decade.
Higher inventory gives buyers more choices and can provide greater negotiating leverage, particularly in markets where listings are taking longer to sell. NAR reported that homes spent a median 31 days on the market in August, compared with 29 days in July. The result is a housing market where prices remain high but buyers have somewhat more inventory to consider.
Why Are Home Sales Slowing?
Higher mortgage rates are one factor weighing on housing activity. Existing-home sales fell 2% in August from July to a seasonally adjusted annual rate of 3.98 million. Sales were also down 1.2% from August 2025.
Pending home sales showed a similar pattern. NAR reported that contracts signed on existing homes increased 0.3% in August from July but remained 4.7% below August 2025 levels. Pending sales declined across all four major US regions on a year-over-year basis.
That suggests the market is not simply dealing with a shortage of homes. Buyers are also responding to the cost of financing. NAR Chief Economist Lawrence Yun said higher mortgage rates have contributed to weaker homebuying activity, although wage growth and job creation have provided some support for demand.
What Does a 7% Mortgage Rate Mean for Buyers?
The difference between a mortgage below 6% and one near 7% can significantly affect monthly payments. Freddie Mac's benchmark rates apply to conventional, conforming home-purchase loans for borrowers with 20% down payments and excellent credit, so individual borrowers can receive different rates depending on their circumstances.
At a 7% rate, principal and interest on a $300,000 30-year mortgage would be about $1,996 per month, before property taxes, homeowners insurance, mortgage insurance and other costs. That means buyers who are already near the limit of what they can afford may need to consider a less expensive property, a larger down payment or a higher monthly housing budget when rates rise.
Is Housing Becoming More Affordable?
The answer depends on which measure is used. Home prices remain elevated, and mortgage rates have moved higher. But NAR's Housing Affordability Index increased to 104.7 in August from 101.2 a year earlier, indicating that the affordability measure improved year over year.
NAR said affordability improved across all four major regions, with the largest year-over-year improvement in the West. That does not mean homes have become inexpensive. Rather, affordability measures also reflect household incomes and financing conditions. Rising wages can partially offset higher mortgage costs even when home prices remain elevated.
Will Mortgage Rates Go Down?
There is no confirmed timetable for a significant decline. The direction of mortgage rates will depend on inflation, Treasury yields, economic conditions and future Federal Reserve decisions.
The Fed's latest projections show policymakers expect the federal funds rate to remain relatively elevated through the end of 2026, with a median projection of 4.1%. The median projection falls to 3.9% in 2028 and 3.6% in 2029.
That projection is not a promise of future policy. Mortgage rates can also move independently of the Fed's benchmark rate as financial markets respond to economic and inflation data. For now, the latest Freddie Mac data shows the 30-year mortgage average moving higher for a fourth consecutive week, reaching 6.95% on Sept. 17.
What More Housing Inventory Means
The increase in inventory is one of the more important developments for buyers. The 1.62 million homes available in August represented the first time since November 2019 that inventory exceeded 1.6 million units, according to NAR.
More supply can reduce competition between buyers and give sellers more incentive to negotiate on price or other terms. However, inventory alone does not solve the affordability problem. A buyer still needs to qualify for financing and absorb the monthly cost of a mortgage, taxes, insurance and maintenance. That is why the housing market can simultaneously have more homes available and still remain difficult for many households to enter.
What Happens Next for the US Housing Market?
The next phase of the housing market will depend on how mortgage rates, home prices and inventory interact. If rates remain near 7%, financing costs could continue to discourage some potential buyers and keep sales volumes under pressure. If rates eventually decline, some buyers who have delayed purchases could return to the market.
At the same time, continued inventory growth could give buyers greater leverage and limit how quickly home prices rise. For sellers, the environment is different from the extremely competitive market seen during the pandemic. Buyers have more choices, while higher financing costs can make them more sensitive to price.