Higher mortgage rates expected for the remainder of the year
While rates dipped slightly this week, bond market volatility could mean a bumpy road ahead, and Fannie Mae is now forecasting rates at 6.8% by year-end.
Key points:
- The 30-year fixed-rate mortgage ticked down from 6.67% to 6.65% this week but remains above last year’s level.
- Bond market volatility over the past two days suggests that government deficits, inflation and economic uncertainty are putting pressure on consumers and investors.
- Nationally, homebuying demand continues to weaken, while inventory is growing — albeit slowly.
It may be time to buckle up and prepare for some mortgage rate turbulence in the weeks ahead.
While the average 30-year fixed-rate mortgage ticked down from 6.67% to 6.65% this week, according to Freddie Mac's latest survey, it remains near the highest levels of the year and is up nearly a quarter-point from the beginning of July.
At the same time, bond markets have shown increased volatility over the past two days, which could mean even higher mortgage rates are coming. The 10-year Treasury bond jumped on Aug. 20 as the Treasury Department's plan to lower yields by increasing a debt buyback program apparently failed to impress investors.
Mortgage News Daily, which uses a different set of metrics than Freddie Mac to determine the 30-year rate, put the daily average at 6.76% in the morning trading session on Aug. 20. That's up from the day before, but similar to last week's levels.
'A tough setup' for buyers
If rates push closer to 7%, the summer market slump is likely to persist into fall, according to Jake Krimmel, senior economist at Realtor.com. "It certainly feels like there is more upward than downward pressure on mortgage rates right now," Krimmel said in response to the latest numbers. "That is a tough setup heading into late summer and early fall, a stretch that traditionally suits buyers quite nicely."
That upward trend is also affecting mortgage rate expectations looking forward. In its August forecast, Fannie Mae predicted the 30-year mortgage will hit 6.8% by the end of the year — and remain in the 6.7-6.8% range throughout 2027. That's a significant jump from its July forecast, which put rates around 6.4% in Q4.
Fannie Mae is also expecting existing home sales to stay around an annualized rate of 4.1 million into the first quarter of next year, a downgrade from the 4.2 million previously forecast.
Mortgage applications dip
Home purchase applications remained sluggish this week, according to the Mortgage Bankers Association (MBA). The seasonally adjusted purchase index was down 2% from a week earlier, and applications are now at a slower pace than a year ago.
"In addition to the economic uncertainty, affordability difficulties have reemerged as a reason for homebuyers to delay purchase decisions given the impact of higher mortgage rates on monthly mortgage payments," said Joel Kan, deputy chief economist for the MBA.
New listings are rising — slowly
For homebuyers who can handle the elevated mortgage rates, there are more choices nationally. New listings for the week ending Aug. 16 were up 1.2% compared to the week before, the highest increase in three months, according to Redfin.
The report concluded that more sellers are coming to terms with the slow housing market and willing to list because they need to sell.
"Some homeowners have been waiting for mortgage rates to fall and demand to surge — but now they realize that's unlikely to happen anytime soon, so they're taking the plunge now," Jamie Derouen, a Houston-area agent, said in the report.
Still, any continued uptick in new listings is likely to be gradual, according to Mike Simonsen, chief economist at Compass. "We can see that inventory is building just a little bit over the last month as mortgage rates climbed," Simonsen said.
"Buyers who are waiting for rates to drop and for more inventory are unlikely to get both."