Mortgage rates climbed to 6.51% this week, with originators now eyeing 2027 for meaningful relief
New Freddie Mac data released Thursday showed mortgage rates soaring to their highest level for nine months, likely further pushing back the timeline for the rate relief that borrowers and mortgage professionals have been counting on.
The government-sponsored enterprise (GSE) said the average 30-year fixed mortgage rate jumped to 6.51% for the week ending May 21, lifting rates further away from the five-handle many originators say is crucial to reviving purchase activity.
That increase was unsurprising after a chaotic week that’s seen bond yields whipsaw amid a sea of seemingly contradictory economic data.
But for housing market watchers, it’s just another twist in a saga that’s seen the outlook plunge into uncertainty in recent months by the outbreak of the US-Iran war and subsequent spike in oil prices.
The shift away from lower rates earlier in the year has been jarring, according to Security First Financial division president Nicholas Barta, because of how promising conditions had looked only months earlier.
“We were really trending towards some lower interest rates and the housing market, both on the refinance and purchase side, was really picking up,” he told Mortgage Professional America.
“And [the war] definitely did have an effect. We saw interest rates that were as low as they had been for probably three years go right back to where we were a year ago, maybe even creep above that.”
Expectations of five-handle rates ‘probably not reasonable anymore’
Rates briefly slipped into the fives earlier in the year, but have now been hovering around the mid-six range for weeks after fears of sticky inflation led financial markets to price in Federal Reserve rate hikes ahead.
The hope that rates with a five-handle will return before the end of this year now looks increasingly unrealistic, according to Barta.
“We thought we’d probably be solidly in the fives towards the end of this year,” he said. “I think that’s probably not reasonable anymore. I think unfortunately, we’re probably looking at next year to see any significant drop in rates.”
The delay hasn’t exactly cratered demand in the national housing market. The National Association of Realtors (NAR) said this week that pending sales increased on both a monthly and year-over-year basis, with its Pending Home Sales Index rising by more than analysts had expected.
But that marks little more than a slow improvement from the sluggish pace of the past year, and rates at their current level are still far higher than what Barta sees as the sweet spot for the market: a range between 4% and 5.5%.
For now, the chances of a return to those levels look increasingly distant. If anything, the rate jumps seen in recent weeks have stirred fears that the average 30-year rate could be moving back towards 7%, reviving grim memories for mortgage professionals of a similar surge in 2022 and 2023.
Borrowers have still adjusted psychologically to the mid-to-high-six range in a way they had not during that post-pandemic spike, according to Barta – but the qualification math at 7% is still unforgiving.
“There’s not as many people that will qualify to purchase homes, or they can’t qualify to purchase the homes that they want because they qualify at a lower level,” he said. “So it does affect the market.”
Market still showing signs of life despite rate volatility
Still, while the market is facing plenty of current headwinds, that’s not to say there isn’t still opportunity for loan originators and homebuyers – and pending home sales eking out growth for three consecutive months is a sign of the market’s continued resilience.
Barta drew a distinction between a market that’s slowed down and one that’s stopped completely. Buyer demand has moderated but not collapsed, he said, and there are still good options for those who want to push ahead with a purchase now.
“We’re not at the point where people have stopped considering buying homes,” he said. “There’s always an opportunity down the road for rates to be lower. Interest rates are obviously temporary. We’re hoping for good things.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
