With mortgage rates on the rise again, it’s a logical question to ask: Will mortgage rates hit 7% again?
It’d definitely be a gut-punch for prospective home buyers, though I don’t know if it would derail them entirely.
Recently, I pushed back on this return to 7% narrative since some folks will use the highest possible readings to say mortgage rates are already there.
This happens a lot on social media. A post will claim rates are the highest since X date, with some random mortgage rate chart that doesn’t reflect reality.
But now it’s kind of true. The 30-year fixed got as high as 6.75% the other day, meaning it’s only about .25% away from a 7-handle again.
We Had 7% Mortgage Rates Almost Exactly a Year Ago
We’ve seen this movie before. The recent rise in mortgage rates driven by sticky inflation and geopolitical concerns.
The weirdest part for me was how long it took. We knew things were bad in the Middle East, yet rates stayed put and even fell in April on some sort of blind optimism.
It wasn’t until the past few weeks, and especially the last week, that mortgage rates finally faced the music.
Now that fear-mongering I was referring to using charts that make mortgage rates look as high as possible might not be so far-fetched.
If rates continue to feel the pressure, it won’t take too much more to get them back in the 7s.
And recall that it wasn’t that long ago that we were there. Sure, we had a sub-6% rate at the end of February and early March of this year (seems like a distant memory now).
But we also had a 7-handle 30-year fixed as recently as last May!
Yep, almost literally a year ago the 30-year fixed stood at 7.02%, according to Mortgage News Daily.
So it’s not out of the realm to revisit those levels, especially if we have good reason to.
With oil continuing to trade at more than $100 per barrel and no sign of a peace deal anytime soon, why wouldn’t mortgage rates keep going up? Or put another way, why would they fall?
What Keeps Us Below 7%?
Still though, they’d have to rise another quarter-percent from here and they’ve already climbed quite a bit.
So one could argue that a lot of the high cost of oil and sticky inflation is baked in to some degree.
You’d need more pessimism and high inflation readings to see mortgage rates continue to climb.
I hope we don’t revisit 7% mortgage rates because it seemed they were finally behind us.
But that was before the Iranian conflict surprised us all. So I’m a bit more cautious today than I was to start the year.
What I kind of see playing out is a temporary spike to 7% (or very close) that could happen if bond investors continue to fret about current conditions.
That is, stubborn and even worsening inflation, renewed global tensions, and hot economic data such as resilient labor.
There’s been a lot of talk lately about rate hikes, with rate cuts apparently completely off the table.
It probably wouldn’t last long, but even a brief visit would be enough to scare home buyers and slow the housing market to a crawl, especially in markets with excess inventory and high prices.
However, this isn’t a guarantee and the data could surprise us. Maybe jobs data comes in colder than expected…
Favorable Spreads Make It Harder to Hit 7% Today
And remember that mortgage spreads are a lot better today, so even with higher bond yields, we have lower mortgage rates.
I don’t really see spreads worsening because they were wide mostly due to prepayment risk.
And with mortgage rates more or less in a range now, there’s less of that fear of everyone refinancing their mortgages quickly.
That means it’s actually harder for mortgage rates to rise above 7% again today.
If we assume a spread of around 210 basis points above the 10-year treasury, you’d need it to rise to roughly 4.90% to get a 7%+ 30-year fixed.
It’s currently around 4.57%, meaning it’d need to come up quite a bit for us to surpass 7%.
So that’s one thing we’ve got on our side as mortgage rates perhaps flirt with the idea of the 7s again.
But either way though, I expect rates to rise above their year-ago levels, serving as yet another gut-punch and psychological hit.
Read on: Check out my mortgage rate calculator to see what even an eighth of a point can make on your home loan.
