Mortgage rates are back above 7%. Is there relief in sight?

The mortgage rate increases of the past two months continued this week even as the pace of increases showed more signs of slowing. But rates have also crossed the 7% threshold once again, which could represent a mental hurdle for home shoppers.

According to data at HousingWire’s Mortgage Rates Center, the average 30-year conforming rate rose 3 basis points (bps) during the past week to reach 7.02% on Tuesday. The average 15-year conforming rate of 6.98% remained the same as a week ago.

Phil Crescenzo Jr., the Southeast division vice president for Nation One Mortgage Corp., thinks consumers and mortgage professionals alike are getting accustomed to 7% rates even after they had dropped near 6% only two months ago.

“I think there has been enough time for industry professionals and prospective homebuyers to plan around this ‘new normal,’” Crescenzo said in an email interview with HousingWire. “The industry professionals may not want to accept this, but the ones that have embraced this and adapted are seeing greater success. The mantra ‘survive until 25’ has not been mentioned in quite some time.”

Numerous housing market and mortgage rate forecasts for 2025 have been released in the past month. HousingWire calls for rates to range between 5.75% and 7.25% next year. Although this is a broad swath of 150 bps, it represents less movement compared to the 400-bps range of 2022 and the 200-bps range of 2023.

“In light of recent market trends, a 150 basis point range in 2025 seems plausible. When rates were low, the range was much smaller,” Mike Simonsen, founder and president of Altos Research, wrote in the HousingWire forecast.

The Mortgage Bankers Association (MBA) reported Tuesday that rising mortgage rates took a bite out of borrower affordability in October. The national median payment for purchase mortgage applicants jumped to $2,127 per month — up $86 from September’s figure of $2,041. Median payments were down $72 (or 3.3%) compared to October 2023.

The MBA’s Purchase Application Payment Index (PAPI) — which measures payment-to-income ratios — rose 2.8% during the month. Median earnings for applicants rose 3.3% and affordability, as measured by the index, improved by 6.3% relative to October 2023.

“With the increase in mortgage rates, the PAPI reached its highest level since July, and we expect weaker homebuyer affordability to remain a hurdle for prospective buyers in the final months of 2024,” Edward Seiler, the MBA’s associate vice president for housing economics, said in a statement.

But homeownership became a less expensive proposition compared to renting during the third quarter, the MBA reported. The trade group’s ratio for measuring mortgage payments to rents declined by 12 bps between the end of June and the end of September. Low-income applicants (those in the 25th percentile) saw the mortgage-to-rent ratio shed 9 bps during the quarter.

The MBA also reported that the most expensive states for mortgage applicants in October were Idaho, Nevada, Arizona, Utah and Rhode Island. That list remained unchanged from September, apart from Utah replacing Florida.

At the other end of the affordability spectrum, the least expensive states in October were Louisiana, Connecticut, Alaska, Vermont and West Virginia. The only change from September was Alaska replacing New York.

Homebuyers received more good news Tuesday in the form of higher conforming loan limits through the Federal Housing Finance Agency (FHFA). In 2025, the conforming limit for loans purchased by Fannie Mae and Freddie Mac will rise to $806,500 for single-family homes, up 5.2% from the current cap of $766,550.

Crescenzo said he does not expect much to change for the mortgage market next month, even if the Federal Reserve cuts benchmark rates for a third straight time. This is because most interest rate traders are already pricing in a cut of 25 bps.

But Crescenzo also believes there are certain loan scenarios that originators can help their clients capitalize on in the current rate environment.

“I still feel that when equity allows in the case of a new-build scenario that offers discounts or a seller that is motivated to incentivize a buyer, the seller-paid buydown is most attractive, offering immediate savings in 1-2 years without a penalty to refinance if the market does improve.”