The rate for a 30-year fixed-rate mortgage surpassed 7% for the first time since January 2025 last week, according to federal lender Freddie Mac. That’s after the Federal Reserve’s first rate hike since 2023, raising rates by a quarter of a percentage point. The Fed said the increase was necessitated by rising inflation, but it could spell bad news for an already strained housing market. “This will increase monthly housing costs for those that are entering the market,” said Serrater Chapman, director of applied research at the Woodstock Institute. “It will also limit the supply. The people that are currently in their homes will be less likely to sell because they’d have to buy again at a higher rate.” The national median sale price of a home was $429,000 in August 2026, up from $422,400 at the same time last year, according to data from the Federal Reserve. In Chicago, the median sale price was $405,000 in August 2026, up from $375,000 at the same time last year, according to data from Illinois Realtors. More context: When the Fed raises rates, it incentivizes banks to hold their money with the central bank rather than loan it out to homebuyers, which carries more risk. Under these conditions, banks charge higher interest rates on mortgages to justify taking their money out of the Federal Reserve. The higher mortgage rates could have a special impact on millennials, who make up a large portion of prospective homebuyers, Chapman said. “Millennials are currently 63% of Illinois’s mortgage market,” Chapman said. “We’re finding that the debt that millennials carry is non-mortgage debt. That includes student loan debt, consumer loan debts and installment loans, which also create a barrier for their debt-to-income ratio, making them less desirable or higher risk for lenders.” Chapman said that even if new homebuyers break into the market and purchase a home, they could be left without the income to maintain their home. “Even if they do get into their home, they could be cash-strapped,” Chapman said. “They get into their home and all of a sudden their furnace breaks, etc. — we’re creating a generation of financially unstable borrowers.”
