Higher mortgage rates may sideline buyers through 2027

WASHINGTON (WOWO) — Prospective homebuyers could be facing mortgage rates above 7% well into 2027, deepening an affordability crunch that is already slowing home sales and discouraging many homeowners from listing their properties.

The Mortgage Bankers Association says the recent rise in borrowing costs is strengthening a housing-market lock-in effect, with owners who have low-rate mortgages reluctant to sell and take on much larger payments for a new home.

Freddie Mac data shows the average rate on a 30-year fixed mortgage climbed from 6.16% in early January to 7.24% in late October. Rates also touched 7.4% in early autumn, the highest since the fall of 2023, before easing a bit in recent weeks.

Mortgage Bankers Association Chief Economist Mike Fratantoni says home-purchase applications are running about 15% below year-ago levels. Refinancing applications have dropped even more sharply because fewer homeowners have any reason to replace existing loans with new ones carrying higher rates.

During the pandemic, some buyers secured 30-year mortgage rates below 3%. Then, the inflation surge in 2022 pushed rates sharply higher, making those older loans especially valuable to owners who might otherwise move.

Fratantoni says the newest increase is reinforcing that hesitation, slowing housing activity and possibly trimming home construction over the next year.

The association expects rates to ease somewhat from current levels, but still remain above 7% throughout 2027. Fratantoni says that outlook could shift depending on geopolitical events, oil prices, inflation, Federal Reserve policy, and pressure from federal deficits and debt.

Home affordability also depends on prices and household incomes. Fratantoni says wage growth has been outpacing rents and home prices in much of the country, and prices have cooled in some markets. Still, elevated borrowing costs remain a particular hurdle for first-time buyers.