Interest Rates: Red arrow going upwards over a house and coins
Illustration by Lanette Behiry/Real Estate News

Mortgage rates climb, may hit 7% soon 

Rates inched up again this week, adding to affordability challenges ahead of the spring shopping season.

March 2, 2023
3 minutes

Key points:

  • Freddie Mac’s weekly survey shows 30-year-fixed-rate mortgages averaged 6.65%, up from 6.5% a week earlier.
  • Some economists are expecting rates to settle in the 7% range in the next couple of months.
  • Mortgage applications were down 5.7% week-over-week, representing a 28-year low.

Mortgage interest rates are continuing a slow but steady upward march leading into the spring homebuying season.

Freddie Mac's weekly survey put the 30-year fixed-rate mortgage at 6.65%, jumping from 6.5% the week before. Sustained economic growth and continued inflation remain big factors in the recent rise, said Sam Khater, Freddie Mac's chief economist. 

"Lower mortgage rates back in January brought buyers back into the market. 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," Khater said.

As one possible sign of where things are headed, Mortgage News Daily's survey estimated rates at 7.1% on Thursday, March 2 after rising sharply the previous two days. Senior Economist George Ratiu said mortgage rates could settle around the 7% range in the next couple months. Those rates, along with rising consumer debt, could create a situation where economic growth slows down — which could ease inflation — but homebuying is more difficult.

At current rates, home prices would need to come down 30% to have the same median price mortgage payment as a year ago, said Lisa Sturtevant, chief economist for Bright MLS. Instead, prices have remained fairly stable after dropping from summer peaks.

Sturtevant said the reason home prices haven't fallen further is because of record low inventory and record high equity.

"Buyers are still competing for very few homes in the market which keeps upward pressure on prices," Sturtevant said. "At the same time, repeat buyers are able to roll significant housing equity into their home purchase, basically 'buying down' the higher rate to make their new home purchase more affordable."

Mortgage applications, HELOCs down

Mortgage applications continued to dwindle, dropping 5.7% for the week ending Feb. 24 compared to the week before, according to the Mortgage Bankers Association (MBA). 

Mortgage purchase applications are currently at a 28-year low for the second consecutive week, said Joel Kan, MBA's deputy chief economist.

"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," Kan said.

During the fourth quarter, mortgage lending was at its lowest level in nearly nine years, according to a new report from ATTOM.

"The severe contraction across the lending industry in the fourth quarter even hit HELOCs, which was the one major sector that had been holding up well earlier in the year as homeowners were using elevated equity from the real estate boom to finance home improvements and other things,"  said Rob Barber, chief executive officer at ATTOM. "The direction of interest rates this year will dictate whether HELOC activity stays high as a portion of overall activity or households return to cash-out refinancing deals to help pay for big-ticket expenses."

The 15-year fixed-rate mortgage also continued to rise, averaging 5.89%. That's up from 5.76% the week before.

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