Mortgage rates in the U.S. cooled over the winter, giving real estate professionals and homebuyers a brief boost in confidence, but now that rates are bouncing back, the excitement is likely being cut short.
U.S. mortgage rates are climbing higher as the U.S. central bank weighs the need for tighter monetary policy in its ongoing fight against inflation.
As of Monday, the average price of a 30-year fixed mortgage was 6.8%, up 0.30% from a week earlier and more than double that from the same time in January, according to Mortgage News Daily’s (MND) rate index, which tracks the day-to-day fluctuations in mortgage rates.
A 15-year fixed mortgage is currently 5.95%, up nearly 0.70% over the last month.
Simply put, when mortgage rates rise, fewer people can afford homes, and when affordability decreases, so, too, does demand, according to Mark Zandi, chief economist at Moody’s Analytics.
“Affordability has evaporated, and with it housing demand,” Zandi told Fortune.
In the last year alone, mortgage rates have risen from a 52-week low of 3.9% to a high of 7.39% in November. This has driven home affordability in the U.S. to the lowest level since 2007, according to data from the Atlanta Fed’s Home Ownership Affordability Monitor (HOAM).
For example, a $250,000 home at a 3.9% 30-year fixed loan would cost the borrower $1,192 a month in principal and interest payments. Today, however, that same $250,000 loan at a 6.8% rate would cost the homeowner $1,630 in monthly payments.
To gauge how mortgage rates were likely to respond in a higher interest rate environment, Fortune gathered the forecasts from eight leading research firms to determine where mortgage rates were heading in the future.
The Mortgage Bankers Association forecasts that a 30-year fixed rate will average around 5.2% in 2023, decreasing to an average of 4.4% by 2025.
Bank of America has a similar prediction, forecasting that mortgage rates will close out the year at 5.25%, Fortune reported.
Morgan Stanley forecasts the 30-year fixed rate will finish 2023 at 6%.
Fannie Mae expects the 30-year fixed rate to finish at 6.3% in 2023 and 5.7% in 2024.
Freddie Mac forecasts the average 30-year mortgage rates to be even higher at 6.4% in 2023, while Moody’s Analytics and Goldman Sachs expect rates to end 2023 at 6.5%.
The highest estimate came from Realtor.com, which forecasts that a 30-year fixed mortgage rate will average 7.4% in 2023.