U.S. mortgage rates saw their biggest weekly increase in four years, exacerbating affordability pressures for Americans ahead of the midterm elections.

U.S. mortgage rates surged this week, marking the biggest weekly increase in four years. The bond market sell-off is directly impacting the homeownership dreams of ordinary American families and pushing the issue of housing affordability to the forefront of politics ahead of the crucial midterm elections.

According to data released by Freddie Mac on Thursday (October 1), the average interest rate for a 30-year fixed mortgage rose to 7.28% as of October 1, a jump of 25 basis points from the previous week. This is the largest weekly increase since October 2022 and pushes U.S. mortgage rates to their highest level since the end of 2023. Behind this surge in interest rates is the worst monthly sell-off in the U.S. Treasury market in four years—September saw the worst monthly performance for U.S. Treasuries in four years, with the 10-year Treasury yield hitting a more than 20-year high.

The core logic driving interest rates upward is that the market expects the Federal Reserve to tighten monetary policy again after its September rate hike to combat inflationary pressures exacerbated by the Trump administration's war with Iran and surged spending on artificial intelligence. Simultaneously, the expansion of government debt and large-scale corporate borrowing for AI infrastructure construction have jointly pushed up bond yields, which in turn have been transmitted to the mortgage market. Data from the Mortgage Bankers Association shows that mortgage applications fell 6% in the week ending September 25, marking the fourth consecutive week of decline.

The chill in the housing market is spreading to the overall economy and has become a political threat to the Republican administration in the weeks leading up to the midterm elections. Polls show that Americans are increasingly worried about the spiraling cost of living, and Trump has previously listed housing affordability as one of the core issues of his administration.

Bond market sell-off spread: Interest rates surged from below 6% to 7.28%.

At the beginning of this year, the 30-year mortgage rate briefly fell below 6%, the first time since September 2022, when the market still anticipated a rate-cutting cycle. However, the situation deteriorated rapidly after the US-Israeli coalition launched its attack on Iran.

Mortgage rates have been climbing steadily since their February lows as commodity exports from the Middle East have been hampered and inflation expectations have risen globally. By September, the initial rate had reached 6.71%, and a historic sell-off in the bond market subsequently pushed it further up to 7.28%.

The most direct and rapid channel through which Americans feel the impact of the bond market sell-off is the housing market—mortgage rates are highly correlated with the 10-year Treasury yield. Inflationary pressures, expanding government debt, and the massive financing needs of businesses driven by the AI development boom have combined to push up bond yields, putting continuous pressure on mortgage borrowing costs.

The market has stagnated: buyers are on the sidelines, and sellers are withdrawing.

The rapid rise in interest rates has brought housing market transactions to a near standstill, and descriptions from market participants confirm the chill behind the data.

“Viewings have basically stopped,” said Don Wessel, a real estate agent in Greenville, South Carolina. “I have some great listings downtown, in the hottest area, but nobody’s coming to see them.” He expects the market to soften further as the holiday season approaches. “I think sellers only have a short window of opportunity right now, after which buyers will completely withdraw from the market.”

Buyers face multiple challenges: historically high home prices, heavy down payment burdens, and exorbitant homeowners association fees and property taxes make financial calculations increasingly difficult for first-time homebuyers. Denver real estate agent Anthony Rael points out that buyers in the high-end market, less constrained by affordability, remain relatively active: "They have plenty of cash on hand and can come up with 20% or 30% down payments. But in the lower-end market, below $500,000, there are many viewings, but no real activity, no offers."

Sellers are also facing a dilemma. Adam Wharton, a Georgia resident, bought a new home in July and listed his old one for sale in early September. Initially, the response was enthusiastic, with full-price offers received within four days. However, the buyer subsequently withdrew the offer due to a jump in interest rates. "Since then, nothing has happened. No viewings, no offers," he said. Because his mortgage rate on the old house is only 3.35% and the monthly payments are less than $1,000, Wharton is in no hurry to sell and is currently considering converting it to a rental property, waiting for the market to recover before relisting it.

The "lock-in effect" has reignited: the momentum of inventory improvement may be reversed.

Prior to this surge in interest rates, there were signs of a recovery in the housing market – the “lock-in effect” that had plagued the market for years began to loosen.

Over the past few years, many homeowners have been unwilling to sell their existing homes in order to retain the ultra-low interest rates locked in during the pandemic, leading to a sharp decline in market inventory and record-high housing prices despite weak demand. In August of this year, inventory levels gradually approached pre-pandemic levels, and some homeowners began to forgo low interest rates and re-enter the market due to family or work reasons.

However, a return of interest rates above 7% could abruptly halt this hard-won improvement and lock sellers back into the market. "Everyone's thinking about 2%, 3%, 4% mortgage rates," Wharton said, succinctly pointing to the root of the current market stalemate.

Real estate companies face pressure on performance: KB Home and Lennar issue warnings.

The impact of rising interest rates is clearly reflected in the financial reports of listed real estate companies.

KB Home, one of the largest publicly traded homebuilders in the U.S., reported last week that its third-quarter revenue fell 20% year-over-year, and the number of homes delivered decreased by 19% year-over-year, acknowledging that market conditions have deteriorated significantly since June. KB Home Executive Chairman Jeffrey Mezger stated:

"Higher mortgage rates have further squeezed affordability, and coupled with geopolitical uncertainty and broader economic headwinds, many potential buyers have become more cautious in their home-buying decisions."

Lennar Corporation, the second-largest homebuilder in the U.S. by delivery volume, also attributed last month's year-over-year decline in third-quarter revenue, new orders, and adjusted earnings to a continued deterioration in buyer affordability.

Nashville real estate agent Jake Kennedy put it more bluntly:

“Soaring oil prices, a sluggish job market, and a war nobody wants—these are all recipes for disaster. I think anyone who has been actively or passively looking for housing now has another reason to put their home-buying plans on hold.”

Political pressure: Housing affordability becomes a sensitive issue in the midterm elections

The soaring cost of housing is translating economic pressure into political risk. Trump had made housing affordability a core mission of his administration and introduced a series of measures, including restrictions on investor acquisition of single-family homes. However, the continued rise in mortgage rates is putting this promise to a severe test.

With the midterm elections approaching, the Republican Party is struggling to maintain control of both the House and Senate, and polls show that the cost of living has become one of the most pressing issues for voters. The continued slump in the housing market is not only an economic problem, but also a political issue that the ruling party cannot avoid.

2026 was initially expected to be the starting point for a housing market recovery, but this expectation is failing to materialize based on the current trajectory. "I still see the market trending downwards, and we're heading into the holiday off-season," said Don Wessel.

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