US mortgage rates have risen for a sixth consecutive week, touching a near three-year high that is pushing would-be homebuyers to the sidelines, according to data released Wednesday by the Mortgage Bankers Association (MBA).

For the week ended September 25, the contract rate on the 30-year fixed mortgage climbed 18 basis points to 7.30%, the highest since November 2023, while the five-year adjustable-rate mortgage (ARM) jumped 37 basis points to 6.47%, a more than two-year high.

Rising financing costs mean more pain for an already strained housing market. The MBA's purchase index, which measures loan applications, fell 4.3% to its lowest since April 2025, and the refinance index dropped another 8.7%, extending a decline that began in mid-August.

Joel Kan, MBA vice president and deputy chief economist, put the chain of causation plainly in an official press release: "Mortgage rates jumping to a near three-year high pushed borrowers to the sidelines."

By component, applications fell 6% overall, with both purchase and refinance applications dropping to their slowest weekly pace of 2025; government-guaranteed refinancing fell 13%, with FHA and VA applications both posting double-digit declines; and ARM share of applications rose to 10.3%, the highest since October 2025. Adjustable-rate products sit roughly 80 basis points below fixed rates, a spread that is steering borrowers toward them.

Housing: Supply Is Back, but Prices Refuse to Fall

Mortgage rates and existing-home sales typically move in opposite directions, but the chill this time is uneven. According to National Association of Realtors (NAR) data, existing-home sales fell 2.0% month over month and 1.2% year over year in August, to a seasonally adjusted annual rate of 3.98 million, the weakest since June 2025.

At the same time, active inventory rose to 1.62 million units, up 3.2% month over month and 5.9% year over year, topping 1.6 million for the first time since November 2019 and equal to 4.9 months of supply at the current sales pace, the highest in more than a decade.

NAR chief economist Lawrence Yun said the ample supply is giving buyers "better negotiating power": about 20% of listings cut their prices in August, the share of homes selling above list price fell to 16% from 20% a year earlier, and the median time on market was 31 days.

Yet prices have not turned. The median existing-home price in August was $429,100, up 1.6% year over year and the 38th straight month of annual gains. Sales in the $1 million-to-$2.5 million range fell 10% year over year, while sales above $1 million rose 3.9%, making the top end the only price band to grow.

Yun attributed that to wages and employment: wages rose 3.1% year over year in August and nonfarm payrolls have grown by 643,000 so far this year, and "job creation and wage growth typically drive housing demand."

That is precisely why Mark Fleming, chief economist at title insurer First American Financial, describes prices as "downside sticky." He notes that mortgage rates above 7% will keep more people tethered to their current homes, as the gap widens between the 3% or 4% mortgages homeowners hold and prevailing rates.

According to Federal Housing Finance Agency (FHFA) national mortgage database data for the first quarter of this year, about 66.7% of outstanding mortgages carry rates below 5%, 49.9% below 4% and 19.5% below 3%, with the average rate on outstanding loans at roughly 4.5%. Morgan Stanley puts the figures at about 70% below 5% and about half below 4%.

Trading up to a similarly priced home would mean a sharp jump in monthly payments, making "not selling" the rational choice. Fleming believes sales could slow further, but absent a major recession that forces distressed sales such as foreclosures, a sharp price decline is unlikely, and prices "will broadly slow their gains, or stop rising."

Inflation: Why Shelter Is Still Holding Up Core CPI

Shift the lens from housing to the price index and a paradox emerges: if housing is this cold, why is shelter inflation still propping up core CPI?

According to Bureau of Labor Statistics data released September 11, CPI rose 3.4% year over year in August, unchanged from the prior month, and 0.4% month over month; core CPI, excluding food and energy, rose 2.4% year over year, slightly below the prior month's 2.5%.

Shelter rose 3.0% year over year, continuing to ease from 3.2% in July, and 0.3% month over month, with the two largest weighted components, owners' equivalent rent (OER) and rent of primary residence (RPR), each up just 0.2%; the monthly gain was driven mainly by a 2.4% jump in lodging away from home.

The key lies in weights and methodology. The National Association of Home Builders (NAHB) estimates shelter accounts for more than 40% of core CPI, while another common measure puts it at about one-third of headline CPI.

OER measures an estimate of how much homeowners could rent their own homes for, and excludes the insurance, property taxes and maintenance costs homeowners actually bear. Rent data also come from surveys and lag market rent changes noticeably, typically feeding into the index only after nine to 12 months.

That means the current combination of high mortgage rates and elevated home prices is unlikely to transmit a cooling effect to inflation through shelter in the near term. Conversely, as long as shelter keeps climbing at 3%, core CPI will struggle to move quickly back toward the 2% target. Supercore inflation, or core services excluding housing, was still 3.1% year over year in August, confirming the stickiness of service prices.

The Other End of the Chain: 10-Year Treasuries and the Fed

Mortgage rates are not set directly by the Federal Reserve; they are anchored to long-term funding costs. The 30-year mortgage mainly tracks the 10-year Treasury yield plus a prepayment-risk spread on mortgage-backed securities (MBS), which two major forecasting firms both model at about 2 percentage points.

The 10-year Treasury yield is running at record levels. Based on Treasury closing quotes, the 10-year yield closed at 5.2361% on Monday after touching 5.27% intraday, the highest since June 2007; the 2-year yield, more sensitive to policy rates, closed at about 4.93%; and the 30-year yield rose to 5.62% intraday on September 29, a high since 2002.

The drivers of rising yields are the same as those behind mortgage rates: Middle East conflict pushing up energy prices, rebounding inflation expectations, deficit and bond-supply concerns lifting term premiums, and expectations of a more hawkish Fed.

The Fed raised rates earlier this month for the first time since 2023, lifting the benchmark rate to 3.75%-4.00%. According to the meeting's dot plot, 12 of 16 officials expect one more hike this year and four expect two. Fed Chair Kevin Warsh told reporters after the meeting that the central bank's preferred inflation gauge, the PCE price index, was running at about 3.6% in August. Investors widely expect one more rate increase before year-end.

Forecasters are already marking down their housing outlooks. In its latest projections, the MBA sees the 30-year fixed rate for loans eligible for Fannie Mae and Freddie Mac underwriting at about 6.8% in the fourth quarter, holding there through June of next year, above last month's 6.7% forecast.

Refinance volume is projected at about $700 billion in 2026, below the $713 billion forecast in August and $747 billion in July, and falling further to $634 billion in 2027. Existing-home sales are projected at about 4.105 million.

Fannie Mae's view is similar: an average 30-year rate of 6.8% over the next three months, easing to 6.7% in the first quarter of next year. Both institutions expect the 10-year yield to end the year around 4.8%, meaning the 6.8% mortgage-rate forecast already assumes long-end yields and inflation expectations ease modestly in coming months. Last week's 7.30% is about 50 basis points above that assumption.

Where Does the Loop Jam?

String the four pieces together and the result is a self-reinforcing loop: high housing costs drive up living and labor costs, sustaining services inflation; services inflation and energy prices make it hard for the Fed to pivot, keeping long-end yields elevated; long-end yields determine mortgage rates, and high mortgage rates freeze trade-up demand, suppress transaction volume and deepen the supply shortage; and insufficient supply gives prices "downside stickiness," with home prices and rents continuing to fuel shelter inflation.

Policy rate hikes can suppress demand, but they cannot move the most lagging link in this chain: the statistical lag in shelter and the lock-in effect among homeowners.

The loop can also loosen. Inventory is already recovering, with 4.9 months of supply the highest in more than a decade; more sellers are cutting prices; and the share of outstanding mortgages below 4% on the FHFA measure has slipped from its peak to 49.9%, meaning the lock-in effect will naturally fade as low-rate loans amortize. If long-end yields fall, the trade-up chain would thaw first.

But with shelter still at 3.0% in the August CPI and September CPI not due until October 14, all the market can see is the same direction: higher rates, colder sales, and prices that will not fall.