Concerns about economic stability are escalating as America inches closer to default, which could cause swings in borrowing costs.

Home buyers faced higher mortgage rates this week as all eyes remain on negotiations in Washington over the nation’s debt ceiling. Economists warn of dire economic consequences if America goes into default on its debt, and that would almost definitely impact borrowing costs.

The 30-year fixed-rate mortgage rose to an average of 6.57% this week, Freddie Mac reports.

“Although there are rising concerns about the state of the economy as the debt ceiling deadline is approaching, investors remain optimistic that the country will come through it,” says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®. “While the housing market continues to recover, with home sales activity above its recent cyclical lows, these rising rates keep affordability low.”

Indeed, worsening affordability remains an issue for home buyers and potential sellers who don’t want to give up the low mortgage rate they locked in over recent years, says Sam Khater, Freddie Mac’s chief economist. “If this predicament continues to limit supply, it could open up an opportunity for builders to help address the country’s housing shortage,” he adds. Recent new-home sales data already shows that is occurring.

Freddie Mac reports the following national averages with mortgage rates for the week ending May 25:

  • 30-year fixed-rate mortgages: averaged 6.57%, rising from last week’s 6.39% average. Last year at this time, 30-year rates averaged 5.10%.
  • 15-year fixed-rate mortgages: averaged 5.97%, increasing from last week’s 5.75% average. A year ago, 15-year rates averaged 4.31%.

The Difference Higher Mortgage Rates Make

Home buyers have been shaken by higher mortgage rates over the past year. The 30-year fixed-rate mortgage averaged 5.1% just last year. Rates moved particularly higher between April 2022 and April 2023, according to a recent LendingTree study. “While a 1.85-percentage-point increase may not seem large at first glance, it’s actually very substantial when it comes to mortgage rates,” says Jacob Channel, senior economist at LendingTree. “Remember that when you’re talking about loans worth six or more figures, a rate that’s even half a percentage point higher than another one can result in significantly higher monthly payments.”

Each weekly fluctuation in mortgage rates is having an impact on buyers’ purchase decisions, with the mortgage application market experiencing similar shifts. Between April 2022 and April 2023, rising annual percentage rates—or APRs—caused calculated mortgage payments to increase an average of about $121 per month, according to the LendingTree study. That amounts to about $1,452 in extra costs each year.

The impact of higher mortgage rates also can change depending on the state where you live. For example, the LendingTree study found that calculated mortgage payments increased the most in places like Hawaii (up by about $256 per month), New York ($194) and California ($188). On the other hand, calculated mortgage payments rose the least in places like North Dakota (up just $65 per month), Iowa ($77) and Wisconsin ($79).