The housing market may have bottomed out, but how long will it ‘bounce along the bottom’? Buyers wait in limbo as mortgage rates boomerang back toward 7%

For the fourth week in a row, U.S. mortgage rates have crawled upward — defying predictions that average rates would soon sink to a more palatable 6%.

“Given sustained economic growth and continued inflation, mortgage rates boomeranged and are inching up toward 7%,” says Sam Khater, Freddie Mac’s chief economist.

Don’t miss

“Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates.”

While experts still imagine that buyer interest will pick up as the spring season draws near, it’s beginning to look like pleasant weather will be the only thing responsible for any improvement.

30-year fixed-rate mortgages

America’s most popular home loan — the 30-year fixed rate mortgage — climbed to 6.65% this week, compared to last week’s average of 6.50%. A year ago at this time, the rate averaged 3.76%.

George Ratiu, manager of economic research at Realtor.com, believes rates “could even crest 7% again in the next couple of months.”

“The rise in rates means higher mortgage payments, deepening the affordability challenge just as we move into the crucial spring homebuying season,” writes Ratiu.

“For the buyers of a median-priced home, today’s rate is translating into a $2,132 monthly payment, 49% higher than last year.”

15-year fixed-rate mortgages

The average rate on a 15-year home loan has now hit 5.89% — while last week, it was averaging 5.76%. This time a year ago, the 15-year fixed-rate was just 2.77%.

Story continues

“At today’s rate, buyers need to put more than 20% down if they don’t want to be cost-burdened,” notes Nadia Evangelou, senior economist for the National Association of Realtors (NAR).

However, she says, key housing indicators suggest the market could pick up again in the coming months. Contract signings have risen significantly for the second straight month.

Read more: Here’s how much money the average middle-class American household makes — how do you stack up?

Homebuyers remain in ‘budget limbo’

While some housing data seems to indicate an uptick in buyer interest — pending home sales and new home sales increased in January — rising mortgage rates and asking prices could keep many at bay.

Most buyers and sellers are experiencing a “stand-off,” says Danielle Hale, chief economist at Realtor.com.

Hale says recent data points to “a potential bottom” in market activity — “however, they don’t yet offer a strong indication of how long the market will bounce along the bottom.”

The median home listing price was up 7.2% in late February, compared to the same time last year, according to Realtor.com.

“Firming price trends could bring out some sellers, but as long as the Fed remains focused on taming inflation, mortgage rates are likely to remain higher, complicating the budget limbo for potential trade-up homebuyers who still require a mortgage.”

Mortgage applications in freefall once more

Demand for mortgages dove 6% since last week, according to the Mortgage Bankers Association (MBA).

Refinance activity also declined by 6% — and is 74% lower compared to the same week a year ago.

“After a brief revival in application activity in January when mortgage rates dropped to 6.2%, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month,” says Joel Kan, vice president and deputy chief economist at the MBA.

“Data on inflation, employment and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates.”

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.