“Rising Housing Costs”: U.S. Mortgage Rates Top 7% as Inflation Pressure Keeps Treasury Yields Elevated

U.S. mortgage rates climb, driving up housing costs across the country
Prolonged war and tariffs intensify upward pressure on prices
Treasury yields rise across maturities, adding to borrowing costs for households and businesses

The average rate on a 30-year U.S. mortgage is climbing. As an energy supply shock originating in the Middle East and the Trump administration’s tariffs heighten inflation pressure, Treasury yields and the mortgage rates that track them have risen in tandem. With home prices and rents also remaining elevated, households face a growing housing-cost burden.

U.S. Mortgage Rates Continue to Rise

According to a Financial Times (FT) report on September 24, citing housing finance agency Freddie Mac, the average rate on a 30-year fixed-rate mortgage reached 7.03% that day, its highest level since January 2025. That was eight basis points (bp) higher than the previous week and 73 bp above its year-earlier level. The rate on a 15-year fixed-rate mortgage also rose 38 bp over three weeks, from 6.04% on September 3 to 6.42% on September 24. Repayment burdens are rising as housing-market indicators deteriorate. According to real estate brokerage Redfin, pending home sales during the four weeks through September 13 fell 5.4% from a year earlier to 299,126, their lowest level in roughly three years. Over the same period, the median monthly mortgage payment stood at $2,633, up 3.4% year over year.

Housing costs have also grown. Redfin estimated that, as of June, a household needed an annual income of $109,796 to buy a median-priced U.S. home. That was approximately $22,000 more than the median household income of $87,599. A household earning the median income would have to spend an estimated 37.6% of its income on monthly housing costs to buy a median-priced home. The conventional threshold for an affordable housing-cost burden is around 30%. The National Association of Realtors (NAR) likewise found that mortgage payments accounted for 35.9% of first-time homebuyers’ income in the second quarter of this year, well above the 23.8% average for all buyers.

Regional Changes in Housing Costs

The scale of the housing-cost burden is also evident at the regional level. One example is the Inland Empire, long regarded as a relatively affordable housing market in Southern California. According to a recent report by the Public Policy Institute of California (PPIC), a nonprofit think tank, more than 60% of residents in San Bernardino, Riverside and Kern counties described housing costs as a “big problem.” Compared with a 2020 survey, that share increased by 17 percentage points in eastern San Bernardino County, 12 percentage points in western Riverside County and 22 percentage points in Kern County. Eric McGhee, a researcher who wrote the report, attributed the Inland Empire’s mounting housing pressure to migration patterns following the COVID-19 pandemic. Higher-income residents from Los Angeles (LA), Orange County and San Diego sought less expensive homes farther inland in Southern California, pushing up prices. Since early 2020, median home values have risen 48% in San Bernardino County and 50% in Riverside County, compared with 35% in LA County. Rents have also climbed rapidly. Median monthly rent for a one-bedroom unit in the Riverside–San Bernardino metropolitan area surged from $1,306 in 2022 to $1,959 this year.

Housing costs are rising sharply in Silicon Valley as well, amid the artificial intelligence (AI) boom. Aggressive hiring by major AI companies, including OpenAI and Anthropic, has increased housing demand. Redfin reported that the median home sale price in the San Francisco metropolitan area reached $1.7 million in March and rose to $1.725 million in June. Rents remain high, too. According to a late-June New York Times (NYT) report citing data from property information company CoStar, the average monthly apartment rent in San Francisco was $3,827, surpassing New York to become the highest among major U.S. cities.

Table 1. Housing-Cost Burdens Across the United States

Inflation Pressure Intensifies

Mounting inflation pressure has contributed to the growing housing-cost burden across the United States. Disruptions to energy supply chains stemming from geopolitical instability in the Middle East are exerting upward pressure on prices. Since the military conflict involving the United States, Israel and Iran escalated in February, traffic through the Strait of Hormuz—which previously carried about 20% of global crude oil and liquefied natural gas (LNG) supplies—has fallen sharply. A vital export route for Middle Eastern oil producers has effectively been obstructed. Saudi Arabia, a major oil producer, used its East–West Pipeline to move crude from eastern oil fields to the Red Sea port of Yanbu for export, but that pipeline recently suspended operations after a drone attack. Production stoppages at some Libyan oil fields and Ukrainian attacks on Russian refining facilities have further reduced oil supply capacity outside the Middle East. International oil prices have continued to rise steeply amid these risks.

The second Trump administration’s aggressive tariff policy is also adding to price pressure alongside elevated oil prices. In July, the Federal Reserve Bank of New York published a report on its official blog titled “More Tariff Pass-Through Is in the Pipeline,” arguing that tariffs were raising production costs for U.S. companies. According to the report, about 90% of the burden from Trump administration tariffs fell on U.S. businesses and consumers rather than foreign producers. Among firms responding to the New York Fed’s survey, two-thirds of service-sector companies and nearly all manufacturers imported raw materials or components needed for production; of those firms, 40% of service providers and 70% of manufacturers said they had paid tariffs directly over the past year. Companies that did not pay tariffs directly were also affected by higher imported-input costs as their suppliers raised prices. Furthermore, 47% of tariff-paying service-sector firms and 44% of tariff-paying manufacturers said they planned to raise prices further. In particular, 30% of service providers and 40% of manufacturers planned additional increases within six months, while 16% of service providers and 7% of manufacturers intended to adjust prices because of tariffs even after six months.

Key Inflation Indicators Worsen

The acceleration in prices is evident across multiple indicators. According to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose 0.4% month over month and 3.4% year over year in August. Energy prices increased 2.1% from the previous month, including a 3.9% rise in gasoline prices. Energy prices were up 16.3% from a year earlier, while gasoline prices climbed 27.4%. The monthly increase in the shelter index widened from 0.1% in July to 0.3% in August, while rent of primary residence and owners’ equivalent rent (OER) each rose 0.2% month over month.

The Personal Consumption Expenditures (PCE) Price Index, a gauge closely watched by the Federal Reserve (Fed), rose 3.7% year over year in July, while core PCE, which excludes volatile food and energy prices, increased 3.3%. Businesses are also facing substantial pressure. The U.S. Producer Price Index (PPI) for final demand rose 0.4% month over month and 5.4% year over year in August. Goods prices increased 7.7% from a year earlier and services prices rose 4.5%; energy goods prices surged 24.4%, while transportation and warehousing services prices climbed 13.0%. Rising producer prices increase companies’ costs and could feed through to consumer prices with a lag.

Bond-Market Sentiment Wavers

Inflation has also put upward pressure on U.S. Treasury yields. According to the Treasury Department, the 10-year Treasury yield stood at 5.17% on September 25, up 21 bp in three days from 4.96% on September 22. It was 38 bp higher than its September 1 level of 4.79%. The rise extended across maturities. Between September 1 and September 25, the one-year Treasury yield increased 32 bp from 4.18% to 4.50%, while the two-year yield rose 42 bp from 4.39% to 4.81%. The three-year yield climbed 48 bp from 4.46% to 4.94%, the five-year yield gained 43 bp from 4.55% to 4.98%, and the seven-year yield advanced 40 bp from 4.66% to 5.06%. Over the same period, the 20-year and 30-year yields rose 27 bp and 22 bp, respectively.

These changes are directly affecting household borrowing costs because U.S. 30-year fixed mortgage rates closely track long-term Treasury yields, particularly the 10-year yield. Treasury yields also serve as benchmarks for corporate bonds, worsening funding conditions for businesses. According to the Federal Reserve Bank of St. Louis, the effective yield on U.S. A-rated corporate bonds reached 5.76% on September 24, up 37 bp from 5.39% on September 1. The yield on investment-grade corporate bonds with maturities of seven to 10 years rose 25 bp from 5.81% on September 22 to 6.06%. The effective yield on lower-rated high-yield corporate bonds stood at 7.80% on September 24, 62 bp above its September 1 level of 7.18%.