Mortgage Rates Hit 6.95% as AI Spending Ends the Low-Cost Era
The average 30-year mortgage rate reached 6.95% last week. Big tech borrowing for AI infrastructure is driving this structural shift in costs.
Key points
- The average 30-year mortgage rate hit 6.95%, the highest in over a year and a half.
- Big tech borrowing for AI data centers and government deficits are raising long-term interest rates.
- Inflation has outpaced wage growth for five months, despite the economy expanding at a 3% annual rate.
The average 30-year mortgage rate reached 6.95% last week. This marks the highest level in more than eighteen months. The low-rate environment of the 2010s has ended.
Economists say structural forces now drive borrowing costs more than Federal Reserve policy. Big tech firms are borrowing heavily to build AI data centers. The federal government continues to run large annual budget deficits.
AI investment drives structural economic change
Consumer and business spending has recovered strongly since the pandemic. This demand now collides with supply chain bottlenecks. Companies are using cash reserves and new debt to expand AI infrastructure.
RSM chief economist Joe Brusuelas calls this a structural transformation. The previous era of weak demand no longer applies. Inflation and interest rates have settled at higher levels.
Bond yields rise amid increased borrowing
The ten-year Treasury yield topped 5% earlier this year. This was the first time since 2023. Increased competition for capital pushes longer-term rates upward.
Federal Reserve Chairman Kevin Warsh noted a shift in investment behavior. Capital is now pouring into AI-related infrastructure. Growth is no longer low and slow as previously expected.
Affordability concerns persist despite economic growth
Inflation has outpaced average wage growth for five consecutive months. Many Americans report difficulty keeping up with rising prices. Affordability remains a top concern before midterm elections.
Bank of America forecasts 3% growth for the third quarter. However, this expansion is heavily dependent on AI spending. Wealthier consumers are driving much of the retail sales increase.
