Another Housing Market Obstacle Just Got Steeper. Mortgage Rates Near One-Year High.

Mortgage rates have climbed to their highest level in nearly a year, cooling homebuyer demand at a time when elevated home prices and a shortage of affordable listings continue to weigh on the U.S. housing market.

The average interest rate for a 30-year fixed-rate mortgage increased to 6.65% last week, the highest level since August 2025, according to data released Wednesday by the Mortgage Bankers Association (MBA). The rise in borrowing costs contributed to a decline in overall mortgage demand, particularly among prospective homebuyers, even as refinancing activity posted modest gains.

Total mortgage application volume also fell 2.7% from the previous week on a seasonally adjusted basis. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less rose from 6.58% to 6.65%. Borrowers also paid slightly more in points, which increased to 0.67 from 0.64, including the origination fee, for loans with a 20% down payment.

The sharpest decline came in home purchase applications, which dropped 7% from the previous week and were 2% lower than the same period a year earlier. The figures suggest that many buyers are once again delaying home purchases as financing becomes more expensive.

Higher mortgage rates have compounded affordability challenges that have persisted for much of the past several years. Although housing inventory has improved in some markets, affordable homes remain scarce, while prices have stayed elevated in many parts of the country. The combination has left many would-be buyers struggling to qualify for monthly payments or choosing to wait in hopes that borrowing costs ease later this year.

Refinancing activity, however, moved in the opposite direction. Applications to refinance existing mortgages increased 4% from the previous week and were 7% higher than a year ago. Even so, analysts cautioned that the increase comes from a relatively small base rather than a broad refinancing boom.

Mortgage rates remain only slightly below where they stood a year ago. In July 2025, rates were just 17 basis points higher than current levels, leaving relatively few homeowners with a meaningful financial incentive to refinance into a lower-rate loan.

Instead, many borrowers appear to be tapping into accumulated home equity through cash-out refinancing. "Despite higher mortgage rates, refinance applications increased, led by FHA and VA refinance applications rising 9 and 10 percent, respectively," Joel Kan, the MBA's vice president and deputy chief economist, said in a statement.

The refinance share of all mortgage activity rose to 43.2% of total applications, up from 40.6% the previous week, highlighting the growing role refinancing is playing even as overall lending activity slows. Mortgage rates continued to rise at the beginning of this week, according to a separate survey from Mortgage News Daily, suggesting that borrowing costs may remain elevated despite recent economic data.

"The key contributor to the recent spike has been the uptick in fuel prices in July combined with the fact that rates never made it any lower than 6.52% over the past 2 months," Matthew Graham, chief operating officer at Mortgage News Daily, wrote in a market update. "In other words, we were already in a high range and the uptick in fuel prices simply gave rates a push," he added.

Fuel prices can indirectly affect mortgage rates because rising energy costs often contribute to inflation expectations. Since mortgage rates generally move in tandem with the yield on the 10-year Treasury note, increases in inflation expectations can translate into more expensive home loans.