Mortgage rates surged for the sixth week in a row, moving closer to 7%. The 30-year fixed-rate mortgage averaged 6.70% in the week ending September 29, up from 6.29% the week before, according to Freddie Mac. That’s the highest level since July 2007. Mortgage rates have more than doubled since the start of this year as inflation soared and led the Federal Reserve to hike borrowing costs. The central bank’s unprecedented campaign to fight inflation has concerned investors and roiled bond markets. “The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” said Sam Khater, Freddie Mac’s chief economist. The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers will pay more. Why are rates rising so fast? The Fed’s aggressive rate hikes are having the intended effect of easing demand, particularly in housing. As a result of the higher rates, home prices have softened and sales have decreased. But there is still a shortage of available homes for sale, which has kept prices elevated. The Fed’s efforts to curb inflation are having a profound impact on the mortgage market, said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “Mortgage rates have increased more than a percentage point in the past six weeks, and refinance and purchase applications continue to decrease on both a weekly and annual basis,” he said. And rates are expected to continue to climb, said George Ratiu, Realtor.com’s manager of economic research. “While even two months ago rates above 7% may have seemed unthinkable, at the current pace, we can expect rates to surpass that level in the next three months.” The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise. This week, the 10-year Treasury touched 4%, a level not seen since 2008. The volatility seen in financial markets is an indicator of the uncertainty caused by the combination of resilient economic activity and expectations of decline in 2023, Ratiu said. “The main concern is Americans’ ability to weather 40-year high inflation which is shrinking paychecks amid sharp rent increases and still-rising home prices, not to mention high interest rates which are curbing households’ ability to borrow,” he said. Affordability is worsening for homebuyers Would-be buyers face the most unaffordable housing market in 35 years, given the combined effect of stubbornly high home prices, surging interest rates and lagging wage growth. A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.01% had a monthly mortgage payment of $1,317, according to calculations from Freddie Mac. Today, a homeowner buying the same-priced house with an average rate of 6.70% would pay $2,013 a month in principal and interest. That’s $696 more each month. Mortgage rates have risen so sharply this year that the typical homebuyer has lost $107,000 in buying power, according to Realtor.com. A household earning the median income and making a 20% down payment could afford a home priced at $448,700 at the beginning of this year when rates were 3.1%. With rates around 7%, the same household can only buy a $341,700 home, data from Realtor.com shows. “The huge surge in mortgage rates over the last nine months has squashed many buyers’ budgets, leading to a significant pullback in transactions,” said Ratiu.