Mortgage Rates Rise to 6.7%, Highest Since 2007

This week’s rate was up from 6.29% last week. Moves that large in a single week have occurred only a handful of times since Freddie Mac started tracking them more than 50 years ago.

A year ago, rates were 3.01%.

The surge in mortgage rates follows a series of interest-rate increases from the Federal Reserve. The central bank has moved aggressively to try to cool the highest inflation in decades, raising its benchmark rate five times this year. Officials have indicated more increases are likely in the months ahead.

Mortgage rates usually rise or fall in tandem with the benchmark 10-year Treasury yield, not the rate set by the Fed, but the 10-year yield is heavily influenced by expectations for Fed rates.

The 10-year yield has ricocheted this week during broad turmoil in the bond markets. On Wednesday, the 10-year yield briefly touched 4%, its highest in more than a decade. It fell sharply later that day, notching its biggest one-day decline since 2009.

The uncertainty has widened the gap between what various lenders are offering, Freddie Mac chief economist

Sam Khater

said in a statement. “The large dispersion in rates means it has become even more important for homebuyers to shop around with different lenders.”

Interest rates have a major influence on housing because they significantly affect a buyer’s monthly payment.

“If you look at the big picture of where we stand today versus where we were entering this year, we’re in a vastly different affordability environment,” said Andy Walden, vice president of enterprise research at mortgage-data firm

Black Knight.

With rates rising so much this year, some would-be buyers have given up and decided to keep renting. Others are spending much more on their monthly payments than they had planned. Some existing homeowners are reluctant to sell, since that could mean taking on a new mortgage with a significantly higher rate.

Jason Carian, 34, sold his home in Boise, Idaho, in April to move to southern California, where his family lives. He had refinanced his mortgage in 2020 at a 2.5% interest rate but knows he won’t get anything close to that now. He now expects to put off buying a new house for at least a year. “I think it’s probably a good time to be a renter,” said Mr. Carian, who works as an account executive for a software company.

Would-be buyers are being forced to reckon with their diminished buying power in a number of ways. Take, for example, a buyer in San Diego with a $3,000 monthly budget for housing. About a year ago, that buyer could have purchased a 1,373-square-foot home, according to real estate brokerage

Redfin.

Today, a buyer with that same budget could get only a 931-square-foot home.

Existing-home sales have dropped for seven months in a row through August. Home prices are still rising on a year-over-year basis, but the pace of growth has slowed, and prices are starting to decline month over month.

The higher rates have also made refinancings an unattractive proposition.

Applications to refinance are down nearly 85% from a year ago, according to data released Wednesday by the Mortgage Bankers Association. The drop-off is forcing some mortgage lenders to cut jobs or even close shop, since refinancings made up the bulk of originations during the pandemic.

The MBA expects mortgage originations to drop 48% to $2.3 trillion this year, dragged down by a 73% decline in refinancings.

Write to Charley Grant at charles.grant@wsj.com