With mortgage rates rising again, it’s a reasonable question to ask: Will mortgage rates ever reach 7% again?
It would be a gut-punch to would-be home buyers, although I don’t know if it will completely deter them.
Lately, I’ve gone back on this going back to the 7% calculation as some people will use a much higher reading to refer to existing loan amounts.
This happens a lot on social media. The post will look for the highest rates as of X date, and some random mortgage rate chart that doesn’t reflect reality.
But now it’s true. The 30-year fixed moved up to 6.75% the other day, which means it’s about .25% away from the 7 hold again.
We’ve Had Mortgage Rates of 7% Almost Once Over the Last Year
We’ve seen this movie before. The recent rise in mortgage rates is driven by sticky inflation and geopolitical concerns.
What was surprising to me was how long it took. We knew things were bad in the Middle East, yet the prices stayed there and even went down in April with some kind of blind optimism.
It wasn’t until a few weeks ago, and especially last week, that mortgage rates finally faced the music.
Now by scary I was referring to using charts that make mortgage rates look as high as possible which may not be that far off.
If prices continue to feel the pressure, it won’t take much to get them back into the 7s.
And remember it wasn’t that long ago that we were there. Indeed, we had less than 6% in late February and early March of this year (seems like a distant memory now).
But we also had 7 30 year old handles repaired as recently as last May!
Yes, about a year ago the 30-year mortgage was standing at 7.02%, according to Mortgage News Daily.
So it is not out of place to revisit those levels, especially if we have a good reason to do so.
With oil continuing to trade above $100 a barrel and no signs of a peace deal anytime soon, why won’t mortgage rates continue to rise? Or put another way, why do they fall?
What’s Keeping Us Under 7%?
However, they will have to go up another percentage from here and they are already up a bit.
So one could argue that most high oil costs and sticky inflation are baked in to some degree.
You would need more pessimism and higher inflation readings to see mortgage rates continue to rise.
I hope we don’t visit the 7% mortgage again because it seems they are behind us.
But that was before the Iranian conflict took us all by surprise. So I’m more cautious today than I would have been at the start of the year.
What I see playing out is a short-term spike to 7% (or very close) likely if bond investors continue to worry about current conditions.
That is, stubborn and worsening inflation, renewed global tensions, and tepid economic data such as strong labor.
There has been a lot of talk lately about rate hikes, and rate cuts seem to be off the table.
It probably wouldn’t last long, but even a short visit would be enough to scare away home buyers and slow the housing market to a crawl, especially in markets with excess inventory and high prices.
However, this is not a guarantee and the data can surprise us. Perhaps jobs data is coming in cooler than expected…
Popular Spread Makes It Hard To Hit 7% Today
And remember that mortgage spreads are pretty good today, so even with high bond yields, we have low mortgage rates.
I don’t really see the spread getting worse because it was so wide because of prepayment risk.
And with mortgage rates more or less in the range now, there’s less of that fear for everyone to refinance their mortgage quickly.
That means it’s actually hard for mortgage rates to rise above 7% again today.
Assuming a spread of 210 basis points over the 10-year treasury, you’d need it to rise to about 4.90% to get 7%+ for the 30-year fixed.
It is currently around 4.57%, which means it will need to go up a bit more to get past 7%.
So that’s one thing we have on our side as the loan rates are probably playing into the 7s mentality as well.
But even so, I expect prices to rise above last year’s levels, acting as yet another gut-punch and brain blow.
Read on: Check out my mortgage calculator to see what even an eighth of a point can do to your home loan.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on X for the hottest.
