US mortgage rates rose to the highest level in more than two years, further weighing on a housing market already suppressed by elevated prices and sluggish sales.

The contract rate on a 30-year fixed mortgage rose 15 basis points to 7.12% in the week ended Sept. 18, according to Mortgage Bankers Association data released Wednesday. That was the highest since May 2024. The five-year adjustable-rate mortgage, however, fell 13 basis points to 6.1%.

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Rates have been trending up since February, when the start of the Iran war drove energy prices up and rekindled inflation concerns. The Federal Reserve last week raised its benchmark interest rate for the first time since 2023 in an effort to contain price pressures. 

With borrowing costs climbing, fewer Americans are applying for home financing. The MBA purchase index, a measure of loan applications, fell 0.8% to a four-week low. The group's refinance index dropped 2.6% to the lowest level since February 2025.

Breaking through the 7% barrier could dampen demand further.

"Seven percent is significant simply because of the psychological effect of people seeing that number be the first digit," said Daryl Fairweather, chief economist at Redfin. 

Fairweather expects higher rates will keep a lid on home-price growth, though sales will stay depressed. 

Sales of previously owned homes fell in August to the weakest pace in more than a year. Builder confidence this month matched its lowest level since late 2022 as higher rates discouraged prospective buyers and higher prices for building materials as well as fuel raised costs. 

Home builders have also been shedding jobs — residential construction employment peaked in September 2024 and has generally been trending lower since.

"The housing market is clearly in a recession by itself, but it's probably not deep enough or going to be long enough to draw the whole rest of the economy back into a recession," said Ben Ayers, senior economist at Nationwide. 

Borrowing costs could remain elevated. Mortgage rates closely track the 10-year US Treasury yield, which is hovering near its highest level in almost two decades. Nationwide expects mortgage rates to remain around 7% at least through the end of this year.

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Even so, the housing market might not have much further to fall.

"We're just so close to the bottom at this point," said Hannah Jones, a senior economist at Realtor.com. "Definitely hitting that 7% number is psychological, but I don't see demand falling off a cliff."

While no one is moving opportunistically, marriages, divorces and job moves will sustain the market, Jones said.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.