Mortgage rates top 7% as odds of a Fed hike surge
Daily rates hit 7.07% on Thursday, and analysts increasingly expect to see a rate hike next week. Meanwhile, existing home sales and mortgage applications fell.
Key points:
- Daily mortgage rates reached their highest level in 16 months, while the weekly average increased to 6.76%.
- Inflationary concerns and surging oil prices have pushed the odds of a rate hike to 70% when the Fed meets next week.
- Existing home sales fell to the lowest annual pace since June 2025, while inventory reached 10-year highs — giving buyers an advantage if they can tolerate the economic headwinds.
Housing market signals point to an increasingly buyer-friendly market heading into fall, but rising mortgage rates — which topped 7% this week for the first time in 16 months — continue to present both a financial and psychological barrier for would-be homebuyers.
Average daily mortgage rates crossed the 7% threshold on Sept. 10, according to Mortgage News Daily, hitting 7.07%. The rise came on the same day that financial markets predicted significantly higher odds of a Federal Reserve short-term rate hike next week.
A Treasury Department buyback intended to push rates lower appeared to backfire Wednesday. The department said it would repurchase $6 billion of 10- to 20-year bonds to pull yields down, but they jumped instead, surging to their highest levels since November 2023. Because mortgage rates tend to follow the direction of Treasury yields, the market reaction likely influenced the daily spike in mortgage rates.
Freddie Mac's weekly survey put the average 30-year fixed rate at 6.76%, up from 6.71% a week earlier and the third consecutive weekly increase. That is the highest reading since June 2025, and up from 6.35% a year ago.
Mortgage applications fell 2.7% for the week ending Sept. 4, according to the Mortgage Bankers Association, as rising rates weighed on demand.
Odds of a rate hike next week now top 70%
Tomorrow's Consumer Price Index will be a key inflation data point when the Federal Open Market Committee (FOMC) meets next week, but today's PPI report will also be a factor. The producer price index, a measure of wholesale inflation, rose 0.4% in August, which was in line with forecasts but followed an upwardly revised 0.1% increase in July.
The odds of a rate hike coming out of the FOMC's Sept. 15-16 meeting, as tracked by the CME Group's FedWatch tool, jumped from 61% Tuesday to 72% Wednesday before settling around 70% Thursday morning, while the odds of a second hike in December rose to nearly 60%.
The latest surge in oil prices, which hit a multi-month high this week, won't be reflected in the August CPI numbers but will likely be in the mix when the Fed considers its next move. "As the conflict with Iran drags on longer than many expected, inflation pressures are becoming increasingly entrenched," said Jeffrey Roach, chief economist at LPL Financial. "At this rate, a hike in rates next week appears likely."
That marks a sharp shift from a Reuters poll of economists conducted Sept. 4 through 9 — before Wednesday's PPI report and the Treasury buyback fallout — in which 70% expected the Fed to hold rates steady at its Sept. 15-16 meeting, down from 90% in August.
Existing home sales dip, but buyers continue to gain leverage
Existing home sales fell 2% month-over-month in August to a seasonally adjusted annual rate of 3.98 million, the National Association of Realtors reported Thursday. It's the first time sales have dipped below 4 million since June 2025. Sales were also down 1.2% compared to a year ago, while median existing home prices rose for the 38th consecutive month, up 1.6% year-over-year.
"Mortgage rates and home sales move in opposite directions, so it's not surprising to see a mild dip in home buying activity due to high mortgage rates," NAR Chief Economist Lawrence Yun said in the report.
As sales fell last month, inventory rose to its highest level in over a decade, according to NAR. Unsold inventory exceeded 1.6 million units, equal to 4.9 months of supply. For buyers able to enter the market, that means more options and negotiating power.
Two separate Redfin reports released this week reinforced that advantage. Sellers outnumbered buyers by nearly 58% nationally in August, the widest gap in Redfin's records dating back to 2013. The report also found that 36 of 49 metros analyzed now qualify as buyers markets.
Total active listings, meanwhile, reached 1.53 million, a six-year high, while new listings climbed 2.6%, according to Redfin. Nationally, 59.5% of homes sold below their original asking price.
"For a buyer who's ready, this is a better market than the one they've been waiting out," said Hector Amendola, president of national lender SimplyPMG. "Houses are sitting longer. Fewer people are bidding over asking. A year ago a first-time buyer with an assistance program attached to their offer got passed over, because sellers didn't want the complication. That's not happening as much now. The rate is worse and the negotiating position is better, and for a lot of buyers the second one matters more."