It’s not exactly great news for anyone thinking of buying a home, because mortgage rates have hit the highest levels in seven years. Even worse, many experts expect rates to go up further still, potentially reaching 8%.
The 30-year fixed-rate mortgage is now averaging 7.26%, the highest level since November 2022. And if forecasts made by experts turn out to be correct, rates will soon exceed that, causing a major impact on the U.S. housing market.
Of course, the history of mortgage rates shows that they have been significantly higher in the past, with rates as high as 18% in 1981. Three experts told MarketWatch that current economic trends suggest mortgage rates could reach 8%.
Lawrence Yun, chief economist at the National Association of Realtors, suggested that if the 30-year fixed mortgage rate reaches and easily surpasses 7.2%, then the rate could shoot up to 8%. He explained that if the 10-year Treasury bond remains at its current level (above 4.2%), then rates could surge to 8%, which would cause a “freeze” in the housing market.
Cris deRitis, deputy chief economist at Moody’s Analytics, agreed. He said that if the spread between the 30-year fixed-rate mortgage and the 10-year treasury remains elevated, a mortgage rate of 8% is “a distinct possibility in the near term.”
Selma Hepp, chief economist at CoreLogic, also suggested that 8% is possible. But she added that the ultimate effect on home prices depends on the strength of the job market, and whether home buyers can afford to buy homes with cash, or if they will need to borrow at much higher rates.
Right now, the yearly rate of inflation in the U.S. is at 3.2%, which is a far cry from the levels seen in 1981. But 8% mortgage rates could still have devastating effects on the housing market, causing even more buyers to be priced out of the market.
As Yun suggested, if the job market doesn’t remain strong and unemployment rises, there will be a rise in home foreclosures, putting downward pressure on home prices.
So, the only hope for the future of the housing market may lie in the strength of the job market – and in the determination of policymakers to keep rate increases to a minimum. For now, however, all eyes are on the mortgage rate to see if it will reach 8% and where it goes from there.
