Higher Mortgage Rates Give Fall Buyers Tougher Math and Colder Feet

In short: Mortgage rates above 7% are a psychological hurdle alongside a financial one. Sellers who price correctly from the start will have the edge this fall.

Mortgage rates continue their upward ascent

The bond market continues to rain on the fall home shopping parade. The 10-year Treasury yield reached a 24-year high, putting upward pressure on mortgage rates, with the daily 30-year fixed rate reaching its highest level in nearly three years. A compressed spread between Treasury yields and mortgage rates has softened the blow — rates would be worse if that gap widened to 2024 or 2025 levels. But that means there’s a limit to how much additional relief compressed spreads can offer – it’s the rise across broader bond yields that’s hindering the homebuyer.

Zillow has revised our mortgage rate forecast upward to 7.1% by year’s end.

What’s the impact on housing? 

Home sellers hoping to close before the holidays face a tougher environment. Part of the challenge is affordability – higher borrowing costs shrink the pool of buyers who can afford a home at a given price. The other part is psychological. Just as headlines about sub-6% mortgage rates prompted shoppers to check their buying power, rates above 7% may spook them before they even run the numbers.

There was not a magical boost in buying power going from 6.1% to 5.9%, and there’s no magical cliff going from 6.9% to 7.1%. But incrementally worse affordability, combined with that psychological hurdle, means sellers may need to be deliberate with strategy. Pricing correctly from the start and being flexible in negotiations could mean the difference between selling this season or holding out for spring.