Mortgage Rates Are Closing in on 7%, Putting Homebuyers on an ‘Emotional Roller Coaster’

An image of townhomes for sale is used to illustrate an article about mortgage rates. Credit: Allison Dinner/Getty Images
A woman stands near a 'for sale' sign displayed outside a townhouse style building on Sept. 22, 2022, in Los Angeles. The U.S. housing market is seeing a slowdown in home sales due to rising mortgage rates.
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Mortgage rates are moving closer to 7%, hitting levels not seen since 2008 and pushing monthly payments further into unaffordable territory for many homebuyers. 

The average 30-year fixed rate reached 6.73% this week, an increase of 38 basis points from last week, according to a survey by Bankrate, which like NextAdvisor is owned by Red Ventures. A survey by the government-sponsored entity Freddie Mac found the 30-year fixed rate average was 6.7%, up 41 basis points from last week. 

When the average breached 6% in early September, it made headlines by surpassing a point unseen in more than a decade. Today, a 6% rate is commonplace. Following the Federal Reserve’s most recent hike to its benchmark short-term rate, there was a clear reaction in the market.  

“The looming recession – if we’re not already in it – combined with the Fed’s messaging has put investors into a tailspin, shooting mortgage rates up,” says Jodi Hall, president of Nationwide Mortgage Bankers. “Homebuyers are on an emotional roller coaster.”  

The outlook for the housing market seems bleak, but experts say it won’t last forever. Here’s what to know about this week’s rate movement and how it affects homebuyers.  

What’s Behind the Recent Rate Movement? 

Leading up to the Fed’s September meeting, experts concurred the mortgage market had already baked in a hefty increase to the federal funds rate. So why did rates jump so high this week?

The mortgage market might already be pricing in additional rate hikes in anticipation of the Fed’s November meeting, says Clare Losey, assistant research economist at the Texas Real Estate Research Center. “The Fed will likely continue to move in a very aggressive way,” she says. “The mortgage market is responding by anticipating future increases in the Fed’s funds rate. I think the [mortgage rate] increases are also in anticipation of a continued downturn in the economy.”  

Fed Chairman Jerome Powell offered a pessimistic outlook on the housing market last week, saying it will “have to go through a correction” to get back in balance. That set off investor insecurity.  

Experts say the need for a correction is undeniable. “[Home] prices have been allowed to accelerate unchecked and now there needs to be a significant moderation in home prices, particularly given the rapid pace of increases in mortgage rates” says Losey. 

What Homebuyers Can Expect from Mortgage Rates Going Forward 

Mortgage rates are not going to stay where they are forever. But for the time being, volatility in the mortgage market will persist.  “We need to see a couple months of a decline [in inflation] – a consistent pattern of declines, really,” Losey says. “One month does not a trend make.”

When the impact of the Fed’s rate hikes is palpable and inflation cools off, mortgage rates will likely follow – albeit at a slower and non-linear pace. 

“They’re not going to come down as quickly as the rate spikes. But we do believe that as investors start to feel a little risk relief, we’ll see those rates continue to trend down,” says Hall.  

How to Approach a Housing Market in Flux 

Today’s homebuyers are likely feeling the strain on their purchasing power as the affordability of homeownership shrinks. While consumer spending remains high in various sectors, “We have ample evidence from the housing market that consumers are not responding in a way that is favorable to growth,” says Losey. 

This is understandable given mortgage rates have nearly doubled since the start of 2022. However, you don’t need to wait for prices and rates to drop so you can buy a home. 

By working with a housing market professional, you can develop a personalized strategy that brings homeownership within reach. Whether you maximize your down payment or minimize it in favor of keeping more money in an emergency fund, it’s about what makes sense for you

“When I purchased my first home, the interest rate was 7.99%, so I see the pain consumers are feeling. If I were buying today, I would take as much financing as I could and have that safety net – what would have been a potential down payment – as peace of mind,” says Hall. 

Pro Tip

Plug and play your desired mortgage interest rate and the rest of your loan details in NextAdvisor’s mortgage calculator to get a good idea of what your monthly payment will be.

Is There an Upside to a Housing Market Correction?  

Talk about a housing correction has spooked investors, driving mortgage rates up in a market where home prices have been slow to fall.  

But a correction means home prices will need to decrease in order to maintain demand. After a period of unsustainable growth in prices, a decline will be a welcome change for homebuyers who are feeling the constraints of inflation.  

“In my mind, this could actually help alleviate some of our affordability constraints over the long term,” Losey says. “Obviously, the decline in home prices is offset by higher rates, but hopefully over the long run, this will help put us in a better position.”