US Mortgage Rates Top 7% and Home Sales Fall to a One-Year Low

US mortgage rates topped 7% for the first time in 15 months¹. Rates had steadily tumbled to about 6% in late February, but reversed when the US and Israel started the war in Iran, disrupting oil shipments and driving up inflation¹. The average rate on a 30-year home loan hit its highest level in months, a move tied to the Federal Reserve and to bond-market investors’ expectations for the economy³.

Sales followed the rate. Home sales in August fell to their lowest level in more than a year, after rising mortgage rates dealt another blow to a hobbled housing market². The 2% monthly decline in existing-home sales reflected higher mortgage rates and a market stuck in a rut². RISMedia counted a three-month skid in home sales⁴.

Why it matters to investors

The housing cycle is now hostage to the rate decision. RISMedia’s framing was that the future of home sales rests in the Fed’s hands, and it noted that Governor Christopher Waller said he would base his decisions on the latest jobs report from the Bureau of Labor Statistics⁴. Inman reported that Governors Waller and Michael Barr, along with New York Fed President John Williams, offered commentary last week that pushed back on the hawkish case⁷.

The sequence is straightforward: yields set mortgage rates, and mortgage rates set transaction volumes. Existing-home sales fell 2% on the month, to their weakest level in more than a year², the third consecutive monthly decline⁴, with the average rate on a 30-year loan at its highest in months³.

Equity investors are already screening for the exposure. Simply Wall St picked out the US housing stocks most exposed to Federal Reserve rate moves and to mortgage moves, noting that Fed rate hike odds are near 60% and that higher market yields have turned the setup⁵. Chair Kevin Warsh’s remarks at the Fed’s annual economic symposium late last month sit behind that repricing³.

What to watch

The data calendar sets the tone. Investors were watching initial jobless claims, existing home sales and the Federal Reserve balance sheet⁹. Inman framed this week’s inflation data as the input that could decide the Fed’s next move⁷.

Markets took the mortgage headline badly on the day, with stocks falling as 7% mortgage rates returned and petrol prices surged⁸. One counterweight to the gloom: Yahoo Finance’s assessment is that a housing-market crash this year remains unlikely⁶.