Mortgage Rates Just Hit Their Highest Level ‘in a Generation’—Is 8% Next?

After spiking to an alarming 23-year high last week, mortgage rates have skyrocketed even further into the stratosphere for a frightening kickoff to October.

For the week ending Oct. 5, rates for 30-year fixed-rate loans averaged 7.49%, according to Freddie Mac. This is a significant spike over last week’s high of 7.31%, a rate not seen since 2000.

“Mortgage rates maintained their upward trajectory as the 10-year Treasury yield, a key benchmark, climbed,” said Sam Khater, Freddie Mac’s chief economist. “Several factors, including shifts in inflation, the job market, and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation.”

Whether these rates will edge even higher toward the dreaded 8% threshold remains anyone’s guess—but what does seem clear is that these rates aren’t just a random blip, but have staying power.

“Mortgage rates have remained firmly in a near 20-year-high territory over the last few weeks,” notes Realtor.com® economic research analyst Hannah Jones in her analysis. “The combination of high mortgage rates and elevated home prices continue to push homeownership out of the realm of possibility for many would-be buyers.”

We’ll break down what the latest real estate data means for both buyers and sellers as the fall housing market gets into full swing—or not—in our latest installment of “How’s the Housing Market This Week?”

High mortgage rates clash with low inventory

Home shoppers willing to take on the latest eye-watering interest rate might not find much to buy.

For the week ending Sept. 30, new listings were down by 1.2% from last year, marking a 65-week decline. Plus, total housing inventory (both new and old listings) lags behind last year’s levels by 2.6%.

The inventory crunch circles straight back to mortgage rates.

“We expect homeowners to feel somewhat ‘locked in’ by mortgage rates until they fall considerably, which will keep new listing activity sluggish,” says Jones.

The high home price problem

Low inventory leads to higher home prices, adding even more financial hardship to ongoing bottom-line injury for buyers.

In September, real estate list prices hovered at a median of $430,000. And for the week ending Sept. 30, prices grew by 0.7% compared with last year.

While high home prices continue to be yet another rain cloud in the overall mortgage rate storm, there is a tiny bright spot: Prices haven’t risen above last year’s record high of $449,000 set in June.

Indeed, median price growth has toggled between -0.9% and +1.1% since mid-May, “emphasizing the push and pull between downward price pressure due to lower buyer demand and upward price pressure due to limited home inventory,” explains Jones. “It seems likely that prices will remain slightly above last year’s level into the autumn and winter months as the market recovers from a dip at the end of 2022.”

Proof that ‘eager homebuyers’ are still out there

Despite a mountain of affordability challenges, what Jones describes as “eager homebuyers” are still not wasting any time making offers on homes.

Homes spent 48 days on the market this September—only one day longer than last year. And for the week ending Sept. 30, homes matched the number of days on the market compared with this time last year.

“As the real estate market continues to recover from the slowdown experienced in 2022, it’s highly likely that homes will start selling more swiftly compared to a year ago in the coming weeks, despite lower demand,” says Jones.

Homebuyers who have not found the perfect home to make an offer on have two options.

New-construction homes offer a path to homeownership as the inventory of existing homes continues to be flat. And other would-be home shoppers can choose to sit tight in a rental until the housing market gets back on its feet.

“Rental prices have fallen over the last few months, giving home shoppers the opportunity to weigh their options with less urgency,” concludes Jones. “Consequently, we anticipate that more households will opt to remain in the rental market for a longer duration, affording them more time to save for their future homes.”

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