The impact of 7% Mortgage Rates

According to MortgageNewsDaily.com 30-year mortgage rates are at 7.11% today for top tier scenarios.

This is the longest stretch above 7% since last October. The graph below from MortgageNewsDaily.com shows 30-year mortgage rates since 2010. Excluding the runup last year, the last time we saw rates this high was in 2001.

The following table is from the Freddie Mac’s primary mortgage market survey (PMMS).

Existing home sales bottomed in December 2022 and January 2023 on a seasonally adjusted annual rate (SAAR) basis. Those closed sales were for contracts signed mostly in the October through December timeframe when rates were the highest.

The recent surge in rates started in June, and if there is an impact on sales from higher mortgage rates, it will likely impact closed sales in the August through October timeframe. We will know about July sales very soon as local market data is released.

There will likely be less of an impact on new home sales since homebuilders will offer various incentives and mortgage rate buydowns (3-2-1 is fairly common - with the homebuilder buying the rate down by 3 percentage points in year 1, 2 percentage points in year 2, and 1 percentage point in year 3).

In an article two months ago, I discussed why this range could be the “new normal” for mortgage rates. Rates at this level definitely impact affordability (see: House Price Battle Royale: Low Inventory vs Affordability.

The key is to watch inventory. Currently inventory is very low, and down about 7% year-over-year. The key questions are: Will existing home sales fall to new lows in the coming months (lower than last December and January)? And will inventory pickup with rates over 7%? I’ll be watching closely!