Mortgage rates squeeze US consumers as sentiment weakens

At 7.49%, US mortgage rates reach a near-three-year high as US consumers report weaker sentiment for a third consecutive month.

The Mortgage Bankers Association reported a 19-basis-point increase in the contract rate for fixed mortgages lasting 30 years during the week ending October 2. That put the rate at its highest since November 2023, extending an uninterrupted seven-week climb; mortgage activity also declined.

The borrowing figures accompany deteriorating household confidence, rather than an outright contraction in the services economy. Together, the releases show consumers reporting greater financial strain while businesses continue to expand, albeit more slowly.

Households mark down buying conditions

The University of Michigan’s preliminary October survey showed consumer confidence declining again, with respondents citing living expenses. Its measure of present economic conditions reached the lowest reading recorded, as did assessments of whether conditions favored purchases of durable goods.

Respondents identified both elevated prices and financing costs as concerns about those purchases. The distinction matters: a household considering a financed purchase faces not only the price of the item but also the expense of borrowing.

Sentiment, however, is not a direct measure of purchases. The survey establishes that consumers view their circumstances less favorably; it does not establish how much spending they will cut, or whether they will cut it at all.

Services expand despite mounting costs

The Institute for Supply Management reported that its services activity measure slipped to 54.9 in September, a decline of half an index point from August. The sector remained in expansion, while its price gauge reached a level last exceeded more than four years earlier.

That combination complicates the assessment of household weakness: slower growth is not the same as falling activity. It also separates two pressures on businesses, the pace of customer demand and the costs companies incur in meeting it.

If service companies pass higher expenses to customers, household budgets would face another source of pressure alongside mortgage financing. If businesses instead absorb those expenses, the adjustment would fall more heavily on their margins; neither outcome is established by the survey alone.

Japan and Germany add weaker readings

Outside the US, Japan recorded another decline in household expenditure despite rising wages. Inflation-adjusted spending fell 3.1% in August against the corresponding month a year earlier, extending the run of declines to nine months.

Germany’s manufacturing demand also weakened: August factory orders dropped 10.6%, reversing July’s 3.2% increase. It was the largest monthly decline since January, interrupting the sector’s effort to sustain a recovery.

The international figures measure different things: Japanese household purchases and German industrial orders, rather than American consumer attitudes. They therefore provide separate evidence of weaker demand, not proof that every economy is following the same path.

If US sentiment weakness develops into lower purchases while demand in Japan and Germany remains subdued, consumer-facing businesses and manufacturers would face a broader sales constraint. If American spending holds up instead, the gap between household confidence and actual activity would remain central to assessing the economy, with service-sector prices and mortgage borrowing providing further tests.