Mortgage Rates Top 7%, Triggering a ‘Sense of Helplessness’ for Many Would-Be Homebuyers

Mortgage rates just rose above 7%. That’s frustrating homebuyers and sellers and thwarting their housing plans.

It’s official: Mortgage rates are back up above 7%.

Even worse, rates could rise further after U.S. Federal Reserve Chair Jerome Powell said policymakers were in no rush to cut rates while inflation remains stronger than anticipated.

Mortgage rates averaged 7.1% in the week ending April 18, according to Freddie Mac. That was up from 6.88% in the previous week. And it’s the first time rates have been above 7% since early December.

These higher rates are frustrating homebuyers and sellers, thwarting many of their plans.

“It really triggers a sense of helplessness,” says licensed therapist Julia Baum, who practices in New York City and San Diego. “A lot of people feel stuck and trapped against their will into certain living situations.”

Every additional point increase is a little more financially—and psychologically—painful for buyers.

“A 6% means something very different than a 7%. It bears more weight,” says Baum. “Even if it’s 6.9% versus 7%, it means something different to people.”

Higher Mortgage Rates Will Push More Homebuyers Out of the Market

When mortgage broker Rocke Andrews began seeing rates top 7% last Friday, he immediately became concerned about the impact on potential borrowers.

“When rates go up, people hunker down and don’t spend,” says Andrews, of Lending Arizona in Tucson. “They’ve been told for so long that rates are coming down, so they just postpone.”

Others might no longer qualify for loans or will be able to qualify only for smaller loans, he says.

If inflation remains high, mortgage rates could climb to 8%, says® Chief Economist Danielle Hale.

As mortgage rates typically follow the same trajectory as the Fed’s rates, they’re expected to remain elevated until inflation falls and the Fed announces rate cuts.

However, she’s optimistic that inflation will come down.

“The good news is it’s not the first time in recent memory that rates will get that high,” says Hale. “The market has seen 7% before, so I think 7% is in a sense a little less scary.”

Elevated Mortgage Rates Will Also Hurt Many Home Sellers

Mortgage lender Shmuel Shayowitz expects the higher rates will push about 15% of buyers out of the market and could also trap homeowners in their existing homes.

That’s because many who would otherwise want to move won’t want to give up the ultralow rates they secured during the COVID-19 pandemic to get a mortgage with a rate that could be twice as high.

“The biggest impact is whatever hope the market had for more homes for sale … that seems to be up in the air,” says Shayowitz, the president of Approved Funding in River Edge, NJ. “Rates will calm down and stabilize. But right now, we’re not getting the seller participation we would hope [for].”

That’s expected to make the housing shortage even worse.

“Even if they want to make an even switch somewhere else, it’s not going to be even,” says Baum. “They’re stuck staying where they are or buying a much smaller house or moving to an area that’s much less desirable” if they’re seeking comparable monthly mortgage payments.

Higher rates don’t necessarily mean that home prices will come down, either. There are just too few homes for sale and too many buyers who want them—that imbalance is keeping prices high.

“It really affects people’s ability to reach their financial goals,” says Baum. “That has an emotional impact on anybody.”