The average 30-year mortgage rate jumped 19 basis points to 7.45% on Thursday, marking a new high since the Iran war began and representing the highest level since May 2024. According to Mortgage News Daily, this surge follows a broader selloff in US government bonds, with the 10-year Treasury yield closing at 5.18% on Thursday, up from 4.96% on Tuesday. The rate had previously sunk as low as 5.99% in late February, but began rising once the Iran war started and accelerated after the Federal Reserve raised rates in September. Mortgage News Daily Chief Operating Officer Matthew Graham attributed the climb since September 10 to three drivers: Fed commentary, higher oil prices, and stronger economic data, though he noted Thursday's bond selloff had no obvious catalyst.
The US economy is experiencing a pivotal shift as investment flows away from residential construction toward AI infrastructure development. According to San Francisco Fed Vice President Adam Shapiro, inflation-adjusted spending on information processing equipment now exceeds residential investment, marking a fundamental change in economic drivers. Real private residential fixed investment was $748 billion in Q2, down 18% from an early 2021 peak, while spending on information processing equipment soared 51% to $752 billion during the same period. As Shapiro noted, "We're seeing a pivotal shift in the US economy: investment is shifting away from residential investment and towards computers." The data center order backlogs now extend out to 2032, indicating no stopping the data center boom as the AI revolution continues.
The Federal Reserve raised interest rates for the first time in three years Wednesday, lifting its target range by a quarter point to 3.75%-4.00%. As reported by The Associated Press, this marks the Fed's first rate increase since 2023 and represents a significant shift in monetary policy. The benchmark 30-year mortgage rate is nearly 7% as the 10-year bond yield has hit the highest level since 2007. The Fed's projections released alongside the rate decision showed policymakers now don't see inflation fully returning to their 2% target until 2029, a year later than projected three months earlier. The yield on 10-year US Treasury notes has shot to the highest in nearly two decades, hovering around 5% and up from around 4% before the Iran war began. The rise has been fueled by views that inflation may take longer to be brought back to the Fed's 2% target than previously expected.
The surge in mortgage rates has significantly impacted housing market activity, with the MBA's index tracking overall mortgage application volumes sliding to a 15-month low. According to The Economic Times, the rise in mortgage rates last week led to a decline in refinancing and home purchase applications, with refinancing applications falling to their lowest level since February 2025. ARMs accounted for 9.8% of mortgage applications last week, as more borrowers opt for adjustable-rate mortgages that offer lower upfront costs than fixed-rate alternatives. The average 30-year mortgage rate reaching 7.45% represents a dramatic increase from the 3% range during the 2010s and the COVID-19 pandemic lows. For crypto markets, the key link runs through those yields, as when government debt pays more, holding Bitcoin carries a higher opportunity cost. The Kobeissi Letter blamed inflation for the bond rout, citing Brent crude above $105 a barrel and record diesel prices, with consumers expecting inflation near 4.6% over the next year.
Major technology companies are borrowing heavily to finance data-center construction and other AI infrastructure, with investment from a handful of companies expected to reach $1 trillion annually soon. Treasury Secretary Scott Bessent highlighted the eagerness of AI companies to issue debt, noting that "a lot of that corporate issuance, I would say, is almost yield-agnostic, because the build-out for AI, the returns on that, the companies believe they're going to be so high." S&P Global estimates that capital expenditures from Alphabet, Amazon, Microsoft, Meta, Oracle, and SpaceX will exceed $1.3 trillion in 2027, up from a projected $870 billion in 2026 and $470 billion in 2025. The ratings firm warns that aggressive build-out could lead to overcapacity if future demand doesn't pan out as expected. Recent developments show Apple wanting to enter the server business with Nvidia's help by 2029, while Taiwan Semiconductor reported 53% monthly sales growth compared to a year ago.
