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Mortgage Rates Go Above 7%

ElitePersonalFinance
Last Update: April 13, 2025 • Financial News •

In the latest talk about the US economy, mortgage rates have reached 7%, up 13 basis points. This marks the highest level since February 2025.

With the Trump administration’s ongoing tariffs, mortgage rates have remained steadily high. Midweek bond yields increased amidst tariffs on Chinese imports that now stand at 145%. On Friday, a less-than-stellar inflation report caused bonds to sell off, forcing mortgage rates to follow the yield on the 10-year Treasury.

“Last week, mortgage rates declined to a six-month low, leading to a 20% jump in applications, with refinances up 35% and purchase applications up 9%,” said Mortgage Bankers Association President and CEO Bob Broeksmit in a statement. “However, mortgage rates and borrower demand will likely remain volatile as economic uncertainty from tariff policies here and abroad persists.”

“There have been some bad weeks for bonds here and there over the careers of most anyone who’s alive to read these words, but unless your career began before 1981, you just lived through the worst week you’ve ever seen in terms of the jump in 10-year yields,” added Matthew Graham, Mortgage News Daily COO.

“This is either the end of the worst week for 10-year yields since 1981 or the end of a fairly average two weeks that fit right in with the trend of the past 18 months.” he continued.

“Forget about housing in this environment, with mortgage rates back up, consumers certainly concerned about the job market, housing will also be on the weak side,” added Nancy Lazar, chief global economist at Piper Sandler on CNBC.

Ripple Effects of Higher Mortgage Rates

Naturally, the housing market continues to be rocked by rising mortgage rates. Prospective homebuyers are discontinuing their search for a new home now that monthly payment estimates scare them off. According to the Mortgage Bankers Association, this marks the third consecutive week new home mortgages have declined, representing a bottom-low activity since Q1 2023.

At the same time, builders are also reconsidering their new project expectations with the decrease in housing demand. This includes builders in high-cost metro areas such as Seattle and New York City, which have seen the steepest decline.

“The 30-year fixed-rate mortgage has been on a roller coaster ride this week, and the weekly average is below today’s mortgage rate quotes,” says Jessica Lautz, deputy chief economist at the National Association of Realtors. “The bond market is reacting in real time to real-time decisions.”

What About Consumer Sentiment?

Amidst all of the tariffs, consumer sentiment continues to drop. According to the University of Michigan consumer survey, sentiment went down to 50.8, a seven-point drop since March, and below 54.6, the Dow Jones consensus estimate.

At the same time, the economic conditions index has dropped 11.4% since March 2025, along with a 10.3% fall in the expectations measure. This marks the lowest level since May 1980. “Consumers are having a really hard time determining what is going to stick and not going to stick,” said Joanna Hsu, the director of the University of Michigan’s Survey of Consumers.

“Even if they knew whether it was at a high or low level, if it sticks, you can plan. When it changes on an hourly basis, that makes it really hard for consumers to plan.”

Consumer sentiment indexes are a way for consumers to know how the average person feels about the US economy in the short and long term. With these surveys, consumers are asked simple questions like how they feel about their current financial situation, thoughts on whether or not the economy will be better or worse, and if they plan to make big purchases soon, e.g., a home or automobile.

“Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month,” said Joanne Hsu, the Survey’s director.

Will There Be More Rate Hikes?

There are conflicting opinions on Wall Street about whether or not the Federal Reserve will impose additional rate hikes. To reach the 2% inflation target, many economists think that continued fiscal discipline is necessary. However, some economists believe that keeping rates the same or hiking them could eventually steer the economy toward a recession, especially with stagnant wage growth and lower consumer spending.

What Are Two Factors That Affect Mortgage Interest Rates?

To understand mortgage rate fluctuations, one must know that they don’t operate in a vacuum but are influenced by many factors, including the 10-year Treasury yield, Federal Reserve policy, and inflation expectations.

10-Year Treasury Yield

One of the strongest long-term mortgage rate volatility indicators is the 10-year Treasury yield. Rising yields equal higher borrowing costs, and bond sell-offs by countries holding them cause mortgage rates to go up. Mortgage lenders often refer to the Treasury yield for insight when determining 30-year fixed loan rates.

Federal Reserve Policy

The Federal Reserve is not responsible for setting mortgage rates, but it does influence the federal funds rate, which is the rate banks charge each other. Increasing short-term lending costs can lead to higher mortgage borrowing costs, especially for adjustable-rate mortgages.

That said, history shows that markets react negatively when the Federal Reserve keeps rates higher for longer, making fixed mortgage loans costlier over time.

Furthermore, Federal Reserve Chairman Jerome Powell (appointed by President Donald Trump in February 2018) has a penchant for affecting bond markets and mortgage pricing simply by using strong words about inflation or labor market conditions, even if rates stay the same!

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