Are Rising Mortgage Rates Slowing the Housing Market?

Mortgage applications fell by 1.2% for the week ending May 23, following a 5.1% drop the previous week. This marks the second straight week of decline, as “higher mortgage rates following a credit downgrade of U.S. debt weighed on buyer demand.” The dip was driven mainly by a 7% decrease in refinance activity, though purchase applications actually increased 3% on a seasonally adjusted basis.

The recent rise in mortgage rates came on the heels of a credit downgrade by Moody’s, which cited concerns over mounting federal debt. The U.S. House’s passage of the “One Big Beautiful Bill Act”—a budget reconciliation bill expected to significantly increase the national debt—further boosted Treasury yields, thereby lifting mortgage rates.

Mortgage Rate Update: How High Are We Talking?

Joel Kan, MBA’s vice president and deputy chief economist, explained: “Mortgage rates reached its highest level since January, following higher Treasury yields.” The average rate for a 30-year fixed mortgage with conforming loan balances rose to 6.98%, up from 6.92% the previous week. Meanwhile, rates for jumbo loans slightly declined to 6.93%.

Other notable rate movements included:

• FHA-backed 30-year fixed mortgages climbed to 6.66%

• 15-year fixed mortgages rose to 6.23%

• Adjustable-rate mortgages (5/1 ARMs) increased to 6.22%

These rates reflect not just the base cost of borrowing but also market volatility tied to economic policy and investor sentiment.

Shifts in Buyer Behavior and Loan Preferences

With higher fixed rates, more buyers are turning to adjustable-rate mortgages. The share of buyers choosing ARMs rose to 7.5%, reflecting a growing trend toward affordability in the short term. Additionally, the refinance share of total mortgage activity fell to 34.6%, down from 36.6%.

Breakdown of application shares by loan type:

• FHA: steady at 17.9%

• VA: dropped to 12.3%

• USDA: unchanged at 0.5%

This shift shows a more cautious, strategic buyer profile emerging—especially among first-time buyers and those considering alternative financing.

Why Mortgage Rates Are Moving—and Why It Matters

Understanding the “why” behind rate fluctuations is key to making informed decisions. Mortgage rates closely track the yield of the 10-year Treasury note. As Fannie Mae explains, this yield is influenced by expectations for short-term interest rates and broader economic outlooks.

In practical terms, rising Treasury yields usually mean higher mortgage rates—adding costs to both home purchases and refinancing. That’s why keeping a close eye on federal policy and credit ratings can help buyers and sellers anticipate what’s coming next.

Bottomline

Market shifts like these may feel uncertain, but they also create opportunity—especially in competitive areas like Orange County. Whether you're buying your first home, upgrading, or selling, having an expert by your side is more important than ever. At Whitestone Real Estate, we guide you with data-driven insights and local knowledge to help you win in any market. If you're thinking about making a move, let's connect and craft your smart next step.

Reference: Griffith, K. (2025, May 28). Mortgage Applications Fall for the Second Week in a Row as Higher Rates Weigh on Demand. Realtor.com.