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Mortgage Rates Surge Above 7.5%, Threatening Housing Market

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  Published in House and Home on Thursday, February 26th 2026 at 15:10 GMT by The Boston Globe
      Locales: Massachusetts, UNITED STATES

By Amelia Stone - Globe Staff February 26, 2026

The American housing market is facing a renewed period of uncertainty as the average rate for a 30-year fixed mortgage climbed above 7.5% this week, marking a fresh high not seen since 2018, according to Freddie Mac. This surge is sending shockwaves through the market, threatening to sideline potential homebuyers and potentially trigger a significant slowdown in activity. The situation is particularly concerning given existing challenges around affordability and inventory.

For months, economists have been forecasting an increase in mortgage rates, largely driven by two key factors: persistent inflation and the Federal Reserve's aggressive monetary policy. The Fed's strategy of raising the federal funds rate, intended to cool down the broader economy, has directly translated into higher long-term interest rates, with mortgages being particularly sensitive. The expectation, initially, was that inflation would cool more rapidly, allowing the Fed to pivot. However, recent economic data suggests inflation is proving more tenacious than previously believed, prompting the central bank to maintain its hawkish stance.

"The market's reaction is a clear indication that inflation is proving stickier than anticipated," explains Dr. Eleanor Vance, a senior economist at the Brookings Institution. "The Federal Reserve remains steadfast in its commitment to bringing inflation back to its 2% target, and that dedication is now manifesting as increased borrowing costs across the entire financial landscape."

Beyond the Fed's actions, rising Treasury yields are further exacerbating the problem. The 10-year Treasury yield, a benchmark for long-term interest rates, has been steadily increasing, closely mirroring and amplifying the upward pressure on mortgage rates. Investors are demanding higher returns on Treasury bonds, reflecting their expectations of continued inflationary pressures and future interest rate hikes.

The 2018 comparison is crucial. When rates last reached this level, the housing market experienced a noticeable cooling period. However, the current context is considerably different. Today's market is characterized by historically low inventory levels and already stretched affordability, meaning even small increases in rates have a disproportionately large impact. The demand for housing remains strong, but the ability to afford that housing is rapidly diminishing.

"We're seeing a significant number of potential buyers hitting the pause button on their home searches," says Sarah Chen, a real estate agent operating in the competitive suburban Boston market. "The combination of already-high home prices, coupled with these soaring mortgage rates, is simply becoming insurmountable for many families. We're having more conversations about renting instead of buying."

Experts predict a discernible decline in home sales over the coming months. While a full-blown market crash isn't necessarily anticipated, a substantial deceleration in activity is highly probable. Price appreciation, which has been a hallmark of the housing market in recent years, is likely to slow down dramatically, and some regional markets could even experience price corrections. Areas that saw the most rapid price gains during the pandemic are particularly vulnerable.

The Impact Beyond First-Time Buyers

The ripple effects extend beyond first-time homebuyers. Existing homeowners considering downsizing or relocating may also be hesitant to sell, fearing they'll be unable to find an affordable replacement property. This could further constrict the already limited housing supply, creating a paradoxical situation where low inventory prevents prices from falling significantly, even as demand weakens.

What's on the Horizon?

There is a glimmer of hope. Should inflation begin to moderate convincingly in the coming months, the Federal Reserve might consider pausing its rate hikes. However, the timing and extent of any such pause remain highly uncertain. Economic indicators will be closely watched, and the Fed is likely to adopt a data-dependent approach. Until there's clear evidence that inflation is firmly under control, the housing market is likely to remain in a state of flux.

Furthermore, the impact of regional economic conditions is becoming increasingly important. Cities and states with strong job markets and robust economic growth may fare better than those struggling with economic headwinds. Monitoring local market dynamics will be critical for both buyers and sellers.

[Image: Graph showing the rise of the 30-year fixed mortgage rate over the past year]

Ultimately, the future of the housing market hinges on the interplay between inflation, Federal Reserve policy, and the overall health of the economy. Navigating this complex landscape will require careful planning and a realistic assessment of affordability.