Mortgage Rates Just Hit 7%. Here’s How the Housing Market Is About to Change.

Interest rates on a 30-year fixed mortgage have risen above 7% for the first time in over 15 months, reaching 7.07% according to Mortgage News Daily. This increase follows a period where rates had dropped to around 6% in late February, before reversing course with global events. The elevated rates are expected to make housing affordability more challenging for buyers, who are also contending with high home prices.

This rise in rates translates to tangible financial impacts for buyers. For instance, a $300,000 mortgage at 7% adds approximately $100 per month in principal and interest compared to 6.5%, accumulating to nearly $36,000 over 30 years. Compared to the 5.9% rates seen in February, the monthly increase is about $215. Higher rates also reduce purchasing power; a borrower earning $100,000 annually with 20% down could qualify for a $670,000 home at 6.5%, but only a $640,000 home at 7%.

Economists, like Lawrence Yun of the National Association of REALTORS®, suggest that 7% could become the "new normal" for mortgage rates, creating a psychological and financial barrier for buyers. Purchase applications for home mortgages fell 1% last week and are 19% lower than the same period a year ago. While higher rates cool buyer demand, they may also offer buyers more negotiating leverage in some markets, allowing for discussions on purchase price, seller credits, or temporary buydowns. Some home builders are already offering incentives, including mortgage rate buydowns to the 5% range, with 66% of builders using some form of sales incentives this month and over a third cutting home prices by an average of 6%.

Experts advise buyers to shop around for mortgages, as rates can vary significantly between lenders. A LendingTree analysis found that borrowers who secured the lowest rates saved an average of 0.63 percentage points, translating to about $121 in monthly savings on a $300,000 mortgage. While rates are elevated now, periods of volatility can create refinance opportunities in the future. The current rise in rates is partly attributed to expectations of higher inflation and surging oil prices.