The most common question among prospective home buyers these days is, “When will mortgage rates go down?” However, rates can do three things: stay the same, move lower — and go even higher than they are now.
What if you wait to buy a house only for mortgage rates to rise to 8% or even more?
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Mortgage rates are closely interconnected with the bond market. Bonds, particularly government Treasurys, have been a go-to investment for investors seeking safety and a guaranteed, if meager, return.
Now, consider a series of circumstances that, within the past few months, may seem more plausible than ever.
Imagine a scenario where the trade war suddenly goes off the rails. Tariffs upon tariffs cause consumer costs to skyrocket. Combined with rising international tensions, the price of oil skyrockets. The stock market goes into a deep correction.
Now, add to the mix rising U.S. debt. Government spending continues to expand, despite the pleas of fiscal conservatives. And as JPMorgan CEO Jamie Dimon recently predicted at the Reagan National Economic Forum in California, the bond market “cracks,” a sell-off begins, prices slide, and yields soar. The 10-year Treasury yield jumps from the current low-to-mid 4% range to 6% — or higher.
The result? Mortgage rates in the 8% range.
Dig deeper: How are mortgage rates determined? It’s complicated.
Chris Whalen is an investment banker in New York and chairman of Whalen Global Advisors. In an interview with Yahoo Finance in November, he predicted that mortgage rates could increase to 8% in 2025.
These days, his rate prediction is not quite as dire. Yet as the nation waits for the Federal Reserve to cut short-term interest rates, he thinks the combination of the federal deficit and the prospect of Congress’s “big, beautiful bill” adding to the U.S. debt might render a Fed rate cut unlikely to lower mortgage rates.
“Those two factors, I think, are weighing on the markets a lot,” he told Yahoo Finance in a phone interview. “When people look at the U.S., they look at the dollar, and they look at some of the other factors — the economy — it’s really hard to get them excited about buying that long-dated Treasury paper. So, imagine if [Fed Chairman Jerome] Powell gave Trump what he wants tomorrow, and dropped the fed funds rate half a point. I’m not sure that would help.”
Whalen believed a Fed rate cut simply wouldn’t be enough to force mortgage rates down significantly. That was the case near the end of 2024, when, after three Fed rate cuts, mortgage rates actually rose.
Keep learning: How the Fed rate decision impacts mortgage rates
Research conducted by the National Association of Home Builders found that with 30-year mortgage rates around 7%, 31.5 million American households could afford a median-priced home of about $460,000. That would require a household income of more than $147,000.
However, as rates climb to 8%, affordability is even further impacted.
Just a quarter-point rate increase from 7.75% to 8% would remove about 850,000 households from the market.
Learn more: How much house can you afford? Use Yahoo Finance’s home affordability calculator.
When was the last time mortgage rates touched 8%? According to Mortgage News Daily data, it was less than two years ago, on Oct. 19, 2023. But for just one day.
However, if a series of events — perhaps a variation of what has been described above, were to become reality — we might see 8% or higher mortgage rates for much longer than one day.
Mortgage loan originator Dan Frio said that, yes, clients still ask when rates will fall back to 3%.
“But we’re starting to see a shift. More people are adjusting their expectations and focusing on what they can afford now rather than waiting for the perfect rate,” Frio told Yahoo Finance in an email.
For example, he remembered September 2024 when mortgage rates fell close to 6% and loan activity spiked for both purchase applications and refinancing.
“That shows that buyers are willing to act when the market gives them a window, even in the 6% range,” Frio said. “It’s no longer about chasing 3%, it’s about recognizing opportunity when it comes.”
He said he helps clients shift their focus from just the interest rate to the bigger financial picture.
“We talk about affordability, monthly payments, and long-term wealth-building through equity,” Frio noted. “My advice to buyers today: If the home fits your life and the payment fits your budget, make the move. Rates will always fluctuate, but opportunities — especially in real estate — don’t wait forever.”
Read more: Which is more important, your interest rate or house price?
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With a fixed-rate mortgage, your monthly principal and interest payment won’t change due to rising interest rates. However, if you have an adjustable-rate mortgage and are beyond your introductory rate period, your payment is likely to move higher according to the terms of your loan.
Many people do, often thinking they may have the opportunity to refinance their mortgage later. However, deciding to buy a house is based on several factors beyond interest rates. Affordability is determined by the price of the home you want to purchase, the down payment you have saved, and the debt you currently carry. In addition, you’ll want to consider the number of years you want to remain in the city and the house you are considering. That can be related to employment, children, and other personal considerations.
The highest mortgage rate recorded by Freddie Mac was 18.63% in October 1981, and that was with more than two discount points applied. The 54-year average for a 30-year fixed mortgage is about 7.75%. From a historical point of view, a high mortgage rate would be somewhere between the two. From a practical standpoint, and for prospective home buyers, a high mortgage rate is likely any interest rate that makes their monthly loan payment unaffordable.
Laura Grace Tarpley edited this article.
