Moving homes is tough. Even setting aside the social aspect (which is especially hard if you have children), the physical process of packing up everything you own, only to immediately unpack it all again, is daunting. For that reason, I have no desire to move now or anytime in the foreseeable future. With that said, I still enjoy looking at what’s for sale. I’m not entirely sure why, but whether it’s Zillow or Realtor.com, scrolling through the listings has become a part-time hobby of mine. I’m sure part of it is financially motivated, as I like to monitor whether anything is changing. But I suspect that deep down, as much as I despise moving, if the “right” house popped up, I might actually consider it.
Well, maybe that was the case back in February, when mortgage rates dipped below 6% for the first time in three and a half years. Lately, though, my occasional scrolling has turned up something different: a handful of homes that have been sitting on the market for a couple of months. These are houses that, six months ago, probably would have been under contract in a couple of weeks. And that brings us to one of the bigger stories in the financial world over the last few months: the considerable rise in interest rates. Let’s take a look at how far rates have climbed, what’s pushing them higher, and what it all means for housing affordability.
The Big Number
Every listing leads with the same thing, the asking price, displayed in the largest font on the page. It’s the number everyone talks about with their friends and family. For most buyers, it’s also only half of the story.
Very few people actually buy a house (outright, that is). Most of the time, they buy a monthly payment. The asking price is just one ingredient in that payment, and the other ingredient (the mortgage rate) doesn’t appear anywhere on the listing. It lives in a separate market entirely, the one that has been moving a lot lately.
This week, Freddie Mac reported that the average 30-year fixed mortgage rate rose to 7.03%, up from 6.95% the week before. That’s the first time rates have crossed the 7% line since January 2025. For context, the same survey sat at 5.98% at the end of February. So in roughly seven months, the hidden half of every price tag in America jumped by more than a full percentage point.
Zoom out further, and the picture gets more dramatic. In the first week of January 2021, the 30-year rate hit 2.65%, the lowest reading in the survey’s history, which dates back to 1971. Before the pandemic began, it was sitting around 3.64%. Today’s rate is more than two and a half times that record low.
Who Sets the Rate?
It’s natural to assume the Federal Reserve sets mortgage rates. It doesn’t, at least not directly. The Fed controls very short-term borrowing costs. Mortgage rates, on the other hand, take their cues from the 10-year Treasury bond.
Think of the 10-year Treasury yield as the wholesale price of money. It’s what investors demand in exchange for lending the U.S. government their cash for a decade. Mortgage lenders take that wholesale price, add a markup for their own risk and costs, and hand you the retail rate. When the wholesale price goes up, everyone downstream pays more.
On Wednesday this week, the 10-year yield closed at 5.11%, its highest level since July 2007. So the real question is why investors suddenly want so much more just for lending money to Uncle Sam.
From Free Money to Inflation (Again)
To understand where we are, it helps to remember where we were. In 2020, the Fed cut short-term rates to zero and bought enormous quantities of bonds, which pushed the wholesale price of money down to clearance-sale levels. At the same time, Washington sent trillions of dollars into the economy. Cheap money, stimulus checks, and snarled supply chains produced exactly what you’d expect: inflation, which peaked above 9% in 2022.
The Fed then slammed on the brakes, and mortgage rates followed, climbing to roughly 7.8% by October 2023. That was the first repricing, but what we’re seeing now is a sequel with a different script.
This time, three major forces are working together: war with Iran, the Fed, and the debt. The war with Iran, which began in late February, was the initial shock. Tensions around the Strait of Hormuz have kept oil hovering near $100 a barrel, and gasoline prices were up more than 27% year over year in August, while headline inflation is running at 3.4%. Bond investors despise inflation for a simple reason: they’re paid in fixed dollars, and inflation shrinks what those dollars can buy. So they demand higher yields to compensate.
The second is the Fed itself. On September 16, the Fed raised rates for the first time since 2023, lifting its target range to 3.75% to 4%, and most policymakers expect at least one more hike before year-end (now priced at 70% probability). Even though the Fed doesn’t set mortgage rates, a central bank in tightening mode signals to the bond market that money will stay expensive.
The third, and perhaps the most important long-term, is debt. The federal deficit is on track to exceed 6% of GDP this year, with war spending now piling on top. The government has to finance all of that by selling more bonds, and when you flood a market with supply, buyers get choosier. This week, a five-year Treasury auction drew weak demand, which is the bond market’s polite way of saying “you’ll have to pay us more.”
For a sense of how quickly this has moved, the Congressional Budget Office’s February outlook projected the 10-year yield would average 4.1% this year. That forecast is now about a full point too low, which, if you’ve read this column before, shouldn’t surprise you.
Doing the Math the Listing Won’t Do
Now for the part that matters to anyone scrolling Zillow with genuine intent. Let’s put the two halves of the price tag back together.
In August 2019, the median existing home in America sold for $278,200. With 20% down and a rate of about 3.64%, the monthly principal and interest payment came to roughly $1,017. A buyer who caught the record-low 2.65% rate on that same house would have paid about $897.
Today, the median existing home sells for $429,100, and prices have now risen year over year for 38 consecutive months. With 20% down at today’s 7.03%, the monthly payment is roughly $2,291.
That’s about 2.25 times the pre-pandemic payment, and more than 2.5 times the record-low payment. Calling it “doubled” is being polite. And that’s before property taxes and homeowners insurance, neither of which has gotten cheaper. Paychecks, meanwhile, have not doubled.
Even within this year alone, the difference is striking. The same $429,100 house financed at February’s 5.98% would have carried a payment of about $2,054. Today it’s roughly $237 more per month, or about $85,000 over the life of the loan. Same house, same bold number on the listing, very different price.
That $85,000 isn’t a rounding error, and the math behind it is sneakier than it looks. Take a nice round $250,000 mortgage. At 5.98%, the borrower will pay $288,439 in interest over 30 years. At 7.03%, that same borrower pays $350,587. That’s a 21.5% increase in total interest, all from a rate move of about one percentage point.
So how does one point turn into 21.5%? Start with the rate itself. Going from 5.98% to 7.03% sounds like “about 1%,” but it’s actually a 17.6% increase in the rate. That translates into a monthly payment that’s about 11.5% higher (roughly $1,496 vs. $1,668), which doesn’t sound so bad on its own. But the principal doesn’t change; you still owe exactly $250,000. Every extra dollar of that bigger payment goes straight to interest, and because more of each early payment is going to the bank rather than the balance, the principal shrinks more slowly, giving interest more time to pile up. Add it all up and the extra $172 a month becomes $62,000 of additional interest. An 11.5% bigger payment, spread over a principal that never moves, becomes a 21.5% bigger interest bill. (The percentages hold at any loan size, which is exactly where the $85,000 on the median home comes from.)
And this is exactly what my scrolling has been picking up. Existing-home sales slipped to an annual pace of 3.98 million in August, and the months’ supply of homes on the market climbed to 4.9, the highest level in over a decade. For years, inventory was starved because homeowners with 3% mortgages refused to trade them in for 7% ones. Now, supply is slowly rebuilding, but buyers are stepping back just as it does.
Reading the Listing Correctly
So what do we do with all of this? First, remember that rates are a moving part, not a permanent fixture. Seven months ago, they started with a five. The forces pushing them higher (a war, an oil shock, a Fed on the move, and a mountain of debt) are real, but none of them are guaranteed to persist, and forecasting their path has humbled far smarter people than me.
Second, remember that every rate has two sides. The same 5% Treasury yield that makes a new mortgage painful also means bonds and cash are paying investors the kind of income we haven’t seen since 2007. The homeowner sitting on a 3% mortgage while earning close to 4% on savings is, quietly, one of the bigger winners of this entire cycle.
And third, don’t let the headline number do your thinking. Whether you’re buying a house, refinancing, or building a portfolio, the right question isn’t “what does it cost?” It’s “what does it cost me, every month, for as long as I own it?”
As for me, I’ll keep scrolling. I’m still not moving…for now.
Markets / Economy
- Markets jumped up and down all week as the 10-year Treasury reached its highest level since 2007. The S&P finished the week up 1.2%, the Nasdaq up 2.1%, and the small-cap Russell 2000 down -0.8%.
- The S&P Global U.S. Manufacturing PMI jumped to 57.0 in September from 53.9 in August, well above market expectations of 53.6, according to the flash estimate. The reading marked the strongest improvement in manufacturing business conditions since May 2022.
- The S&P Global U.S. Services PMI rose to 58.7 in September from 56.5 in the previous month, well above the market consensus of 56, reflecting the strongest expansion in services activity in over five years.
- The University of Michigan’s consumer sentiment index improved slightly to 48.1 in September from a preliminary reading of 47.8, but remained near historically low levels.
Stocks
- U.S. equities were in positive territory. Technology and Communication Services were the top performers, while Utilities and Energy lagged. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed higher for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield increased 16 basis points to 5.17% during the week.
- Global bond markets were in negative territory this week.
- Government bonds led for the week, followed by high-yield bonds and corporate bonds.
