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Haunted by high prices and low inventory, the U.S. housing market can sometimes feel like a horror movie to prospective home buyers. Now there are fears that one villain is back from the dead: the 7% mortgage rate.<\/p>\n
After mortgage rates surged in March 2022, when the Federal Reserve embarked on a series of interest rate hikes to quell inflation, the 30-year rate reached towards 8% in October 2023<\/a>. <\/p>\n Mortgage rates began falling again last December<\/a>, when they dipped below 7% for the first time in four months. Forecasters suggested the 7% rate was dead and gone, putting out predictions that rates would<\/a> <\/a>fall below<\/a> 6% by the end of 2024, but the 7% rate may have some life in it yet. U.S economic growth is still running at a pace that\u2019s hotter than expected<\/a>, and that\u2019s continuing to keep overall interest rates and mortgage rates up.\u00a0<\/p>\n But fear not: Rates will still fall in the back half of this year, economists tell MarketWatch.<\/p>\n Mortgage rates rose over the last week after data indicating consumer prices<\/a> and wholesale prices<\/a> rose last month, and the job market<\/a> is thriving. With the Federal Reserve now expected to delay its interest rate cuts until the second half of the year, mortgage rates are once again rising across the board.<\/p>\n Mortgage lenders set their rates based on a number of factors, which include the borrower\u2019s credit score, their loan-to-value ratio and other market factors. And that causes considerable variation: The 30-year mortgage rose to 7.14% as of Friday afternoon, according to one survey by Mortgage News Daily<\/a>.\u00a0<\/p>\n Freddie Mac, which bases its estimates on thousands of mortgage applications, said its measure showed rates jum<\/a>p<\/a>ing 13 basis points to 6.77%<\/a> as of Feb. 15. And the Mortgage Bankers Association, whose data comes with a one-week lag, indicated that the average contract rate for a 30-year mortgage was at 6.87% last week, with the 30-year jumbo loan already hitting 7%.<\/a><\/p>\n \u201cWhat\u2019s happened right at the moment is that there have been some strong data releases that people are eagerly relating to, including the CPI itself, and they\u2019re concluding that the Fed is going to change the pace or timing at which they would cut interest rates,\u201d Doug Duncan, chief economist at Fannie Mae, told MarketWatch in a phone interview on Friday.<\/p>\n \u201cThat\u2019s an uncertainty in the market. But they\u2019re also ignoring the fact that consumer spending came out very weak and a couple of other macro indicators<\/a> came out weaker,\u201d he added. Retail sales fell to a 10-month low in January<\/a>, and credit-card and auto-loan delinquencies are at the highest point in more than a decade<\/a>. Consumer credit growth has slowed significantly<\/a>.<\/p>\n Intercontinental Exchange, which also tracks mortgage rates, noted that the 30-year rate was as high as 6.87% in the last few days. But \u201cborrowers with lower credit scores, those taking cash-out refinances, and jumbo loan borrowers are all seeing offerings above 7% again on average,\u201d Andy Walden, vice president of enterprise research strategy at ICE, told MarketWatch.<\/p>\n \u201cAs to why rates are rising, it\u2019s as simple as market expectations meeting the reality of recent economic reports,\u201d Walden explained.\u00a0<\/p>\n Strong economic data which has exceeded what the market was expecting has in turn \u201ccaused market uncertainty regarding the probability the Fed will begin easing rates early this year,\u201d he added.<\/p>\n Two other factors are also \u201clingering\u201d in the shadows, Lawrence Yun, chief economist at the National Association of Realtors, stressed to MarketWatch.<\/p>\n That is the \u201cmassive issuance of government bonds to finance the large federal budget deficit,\u201d Yun said. \u201cIt is outside the Federal Reserve\u2019s control, but to absorb such an amount means the need exists to offer higher interest rates.\u201d<\/p>\n And let\u2019s not forget about a potential government shutdown in March, he added, \u201cand the disruption in government bond payments could also be at play.\u201d<\/p>\n Still, the 30-year as measured by Freddie Mac \u201cis unlikely to go up to 7%,\u201d Yun stated. \u201cWe\u2019ll very likely see weekly bounces, but I think the average rate will be closer to 6% by the end of the year.\u201d<\/p>\n The return of high mortgage rates is a thorn in the real-estate industry\u2019s side, as they will likely keep sales muted into the spring home-buying season.\u00a0<\/p>\n In 2023, home sales hit a 29-year-low<\/a> amid historic unaffordability. There were few homes for sale on the market, and buyers were dealing with 8% mortgage rates. The typical home in the U.S. was around $402,300, according to Redfin<\/a>.<\/p>\n The current data is spooking people, one agent noted.<\/p>\n \u201cA lot of my customers are paying close attention to what the Federal Reserve says,\u201d Hal Bennett, a Bellevue, Wash.-based real-estate agent with Redfin Premier, said in a statement<\/a>.<\/p>\n \u201cBuyers and sellers came off the sidelines in December when the Fed signaled it would lower interest rates three times in the next year, but now some are getting cold feet because the Fed indicated that rate cuts may come later than expected,\u201d he added.\u00a0<\/p>\n Duncan and his team at Fannie Mae said they\u2019re still sticking to their forecast which expects the 30-year rate to fall below 6%<\/a> by the end of the year. \u201cI don\u2019t see any reason right now to change that forecast,\u201d Duncan said. The jump in rates \u201cis a market reaction to short term factors,\u201d he added.\u00a0<\/p>\n He also encouraged home buyers to shop around for lower rates. \u201cLenders don\u2019t make any money, unless they make you a loan,\u201d Duncan said. \u201cSo you should walk in the door knowing that they will make you a loan, and if you make them compete, you will get a better deal than if you just [go with] one.\u201d\u00a0<\/p>\n \u201cI do it myself,\u201d he added. \u201cI have never taken a mortgage where I did not talk to at least three mortgage [lenders] and every time I got a better deal.\u201d\u00a0<\/p>\n<\/p><\/div>\n\n30-year is already past 7%, according to some sources<\/strong><\/h4>\n
Other factors that could push up mortgage rates<\/strong><\/h4>\n
Rates will come back down below 6%, Fannie Mae says<\/strong><\/h4>\n