US Mortgage Rates Jump to a Three-Year High of 7.49% as Midterms Draw Near

The surge in US bond yields has now reached American households directly. Data from the Mortgage Bankers Association released on Wednesday showed the average 30-year fixed mortgage rate climbing to 7.49% in the week ending 2 October — up 19 basis points in a single week and the highest reading since November 2023.

For markets, this is more than a housing story. It shows how the selloff in US Treasuries is feeding through to the real economy, and it adds a new layer of political pressure on the administration with the 3 November midterm elections less than a month away.

🔗 Why Mortgage Rates Follow the 10-Year Yield

A common assumption is that the Federal Reserve sets mortgage rates. In reality, US mortgage rates track long-term bond yields — above all the 10-year Treasury yield. When investors demand a higher return to hold government bonds, lenders’ funding costs rise and they pass those costs on to borrowers.

That is exactly what has happened. The 10-year yield pushed above 5.3% on Monday, its highest level in 24 years, and touched around 5.35% on Thursday, while the 30-year yield moved above 5.70%. Since the US–Iran conflict began in late February, mortgage rates have risen by roughly 1.4 percentage points.

🔍 Three Pressures Behind the Rise

1. Energy-driven inflation

The war involving the US, Israel and Iran has disrupted Middle East energy exports since late February, lifting oil prices and pushing up transport, production and consumer costs. US PCE inflation — the Fed’s preferred measure — rose to 3.4% in August, up from 2.8% in February and well above the Fed’s 2% target. Bond investors are demanding higher yields to protect against that risk.

2. Record government borrowing

US federal debt has passed the $40 trillion milestone, and continuing budget deficits mean more government bonds keep coming to market. The National Association of Realtors’ chief economist, Lawrence Yun, has warned that heavy government borrowing is absorbing private savings and leaving less capital available for home loans.

3. A Fed that is not ready to cut

The Fed raised rates by 25 basis points in September — its first hike since 2023 — and officials have indicated another increase may be needed before year-end, although markets currently do not expect a move at the late-October meeting. Either way, rate cuts look off the table for now.

🏠 A Housing Market Under Strain

Higher borrowing costs are hitting a housing market that was already stretched after years of rising prices. The MBA reported that mortgage applications fell 4.2% in the latest week to their lowest level since February 2025, and total application volume has almost halved since January. Refinancing has dropped especially sharply, as very few homeowners have a reason to refinance at current rates.

• The lock-in effect: Millions of homeowners secured loans near 3% during the pandemic. They are reluctant to sell and take on a new mortgage at almost 7.5%, which keeps the supply of homes for sale low.
• First-time buyers squeezed: Home prices remain near record highs, so higher rates sharply raise monthly payments and reduce how much buyers can borrow.
• Affordability gap: According to NAR data reported by Bloomberg, around 49% of US metro areas now require a household income of at least $100,000 to afford a median-priced home with a 10% down payment — compared with just 6% in 2019.
• Homebuilders cautious: Builders such as KB Home say higher rates and economic uncertainty are making buyers more hesitant, which could weigh on construction activity.

🏛️ The Political Angle Ahead of the Midterms

Lower housing costs were a central campaign promise for President Trump, who said in 2024 that he aimed to bring mortgage rates back toward 3%. When he returned to office in January 2025, the average 30-year rate was 6.96% according to Freddie Mac. It eased to 5.98% in late February 2026 before rising sharply once the Iran conflict began. At 7.49%, the MBA’s latest reading is now above the level when he took office.

The administration has taken several steps on housing, including calling on Fannie Mae and Freddie Mac in January to support $200 billion of mortgage-backed securities purchases, backing limits on large investors buying single-family homes, and supporting efforts to reduce barriers to construction. Treasury Secretary Scott Bessent has argued that inflation and mortgage rates should fall once the Iran conflict ends and energy markets are well supplied.

A Reuters/Ipsos poll shows the cost of living is voters’ top concern heading into the midterms, and housing affordability ranks especially high among younger Americans. Republicans point out that the affordability problem began before the current administration, while Democrats are using the latest rise in rates to challenge the economic record. For markets, the key point is that housing is now firmly part of the election debate — and any policy response could move bonds and the Dollar.

📄 Key Data Snapshot

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Three Scenarios for the Weeks Ahead

📅 What to Watch