The 30-year fixed-rate mortgage climbed BACK above 7% today, reaching its highest point since early July

The average rate on a 30-year mortgage in the U.S. increased again this week, reaching its highest level in nearly three months.

Freddie Mac reported Thursday that the rate rose to 6.54%, up from 6.44% last week. Despite the recent rise, the average rate remains lower than it was a year ago, when it hit a 23-year high of 7.79%.

Higher mortgage rates can add hundreds of dollars to borrowers' monthly payments. The average rate has now climbed for four consecutive weeks and hasn't been this high since August 1, when it reached 6.73%.

Borrowing costs for 15-year fixed-rate mortgages, commonly used by homeowners refinancing, also increased this week. The average rate rose to 5.71% from 5.63% last week. A year ago, it was 7.03%, according to Freddie Mac.

Mortgage rates are affected by various factors, including how the bond market responds to the Federal Reserve's interest rate policies and economic data on inflation. This, in turn, impacts the 10-year Treasury yield, which lenders use as a reference for setting mortgage rates.

Just four weeks ago, the average rate on a 30-year mortgage dipped to 6.08%, its lowest level in two years, after the Federal Reserve cut its key interest rate for the first time in over four years, signaling more cuts through 2026. While the Fed doesn’t directly set mortgage rates, its policy shift paved the way for them to decrease.

However, Treasury yields have risen in recent weeks after reports showed the U.S. economy was stronger than expected. The yield on the 10-year Treasury reached 4.20% Thursday afternoon, up from 3.62% in mid-September, just before the Fed's rate cut.

"The continued strength in the economy drove mortgage rates higher once again this week," said Sam Khater, Freddie Mac's chief economist. "Over the last few years, there has been tension between the negative economic outlook and stronger-than-expected economic data. This has led to more volatility in mortgage rates, even in a growing economy."

The rise in mortgage rates is a setback for potential homebuyers, as it reduces their purchasing power at a time when home prices remain near record highs, despite a housing market slump since 2022.

Sales of existing homes in the U.S. slowed in September to their weakest annual rate in nearly 14 years, even as mortgage rates eased slightly. Meanwhile, new home sales rose 6.3% year-over-year in September, according to the U.S. Census Bureau. Homebuilders have responded by lowering prices and offering incentives, such as covering part of the mortgage rate, to counter the impact of high borrowing costs.