Mortgage rates approach 3-year high as new applications plunge
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Mortgage rates spiked to their highest level in nearly three years, continuing their climb above the 7% threshold.
Why it matters: Housing sales were already slow due to a lack of inventory and elevated rates, creating a risk that the market could further its freeze.
Zoom in: The weekly average 30-year fixed mortgage rate was 7.28% as of Thursday, Freddie Mac reported.
- That's up 0.94 points from a year ago, and up 0.25 points from last week.
- Mortgage rates closely track 10-year Treasury yields, which have risen by over 1.25 percentage points since the start of the Iran war in February.
The impact: Mortgage applications are plunging.
- The Mortgage Bankers Association reported Wednesday that applications during the week ended Sept. 25 fell 6% from a week earlier.
With rates at their highest point since November 2023, home buyers are beginning to turn to adjustable-rate mortgages.
- ARMs made up 10.3% of mortgage applications in the most recent period, marking the highest point since October 2025, according to MBA.
- "Affordability and borrower demand have weakened in recent weeks as the higher-rate environment continues to put pressure on both prospective homebuyers and homeowners looking to refinance," MBA CEO Bob Broeksmit said in a statement.
What we're watching: There are early signs that rising rates could put downward pressure on prices as sellers look to attract buyers.
- "Softer market conditions and greater affordability pressures have contributed to increased pricing pressures across many of our markets," KB Home senior VP William Hollinger said last week on an earnings call, noting the home builder had "made pricing adjustments."
Reality check: Rates may not remain elevated for long.
- "We expect the situation to improve next year, as energy prices drop back and the aggressive Fed tightening cycle which has been priced into money markets does not fully materialise, causing mortgage rates to retrace most of their recent increases," Capital Economics senior North America economist Thomas Ryan wrote Tuesday.
- Capital Economics projected that 30-year fixed mortgage rates would average 6.25% by the end of 2027.
