Home financing costs are doing the part of the Cha-Cha Slide where they bring it to the top like they’ll never ever stop. Amid ongoing inflation, economists are wondering how high average 30-year US mortgage rates will go after topping 7% this week for the first time since early 2025, according to Freddie Mac. The surge comes after the Federal Reserve raised interest rates last week for the first time in three years, a decision that markets saw coming: Before the rate hike, mortgage rates and Treasury bond yields—which generally move in tandem—spiked in anticipation. Forecast: “There’s no reason to think that the rout [in bonds] couldn’t continue, and rates get closer to 8%, or even higher,” the chief economist at Moody’s Analytics told Barron’s. But… - This worst-case scenario—as another economist characterized it to Barron’s—would require “significant deterioration” in the US dollar’s safe-haven status and a continued Treasury bond sell-off.
- Those factors hinge largely on the Iran war and its inflationary impact on the prices of energy and general goods. Alongside rising federal debt, this has rattled investors’ appetites for government bonds (and not just in the US).
Researchers thought this year would go differentlyMortgage rates fell below 6% in February for the first time since 2022, giving housing experts hope that market activity might return to normal this year…until the Iran war started, and the spring home-selling season flopped. Now, economists expect that mortgage rates surpassing the psychologically significant 7% threshold will have a chilling effect on home sales. For context, homeowners who locked in ~3% rates during the pandemic could pay thousands of dollars more per month if they moved and got a new mortgage for the same amount. Already…high mortgage rates contributed to a 2% month-to-month dip in existing home sales last month, according to the National Association of Realtors. They’re also leading some borrowers to opt for riskier, adjustable-rate loans.—ML | 
