Mortgage rates above 7% are the 'new normal'—here's why — SkimNews
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- Fannie Mae forecasts an average mortgage rate of 7.5% in 2027, while the Mortgage Bankers Association expects rates to remain above 7% well into 2027.
- Lawrence Yun and Robert Dietz, chief economists for the National Association of Realtors and National Association of Home Builders, respectively, publicly characterize rates above 7% as the “new normal”; the 3%-4% rates borrowers knew before 2022 are unlikely to return soon.
- Federal Reserve data show its preferred PCE price index has not fallen below the 2% target since February 2021; with inflation elevated, investors generally demand higher long-term bond yields, and mortgage rates tend to track the 10-year Treasury yield.
- Selma Hepp says heavy federal borrowing and enormous artificial-intelligence investment in data centers, power generation and other infrastructure have intensified competition for capital, which can put upward pressure on longer-term borrowing costs.
- Tom Graff says banks have become more reluctant to hold mortgage-backed securities since the 2022-23 rate spike produced steep losses on bond portfolios; the Silicon Valley Bank and First Republic failures also prompted greater regulatory scrutiny of those holdings.
- Steve Kaminski says the Federal Reserve’s pandemic-era purchases of Treasuries and mortgage-backed securities helped drive mortgage rates to historic lows, but the Fed has since stopped actively buying mortgage-backed securities and rates will likely remain elevated for at least the next year.
- Selma Hepp says returning to roughly 6% would likely require lower inflation, slower economic growth or less government borrowing to pull down the 10-year Treasury yield; she also rejects treating 7% as a permanent “new normal.”
Why it matters: For prospective homebuyers, the practical change is that the 3%-4% financing conditions common before 2022 are unlikely to return soon, while Fannie Mae projects a 7.5% average in 2027. Hepp calls waiting for significantly lower rates a gamble; reaching roughly 6% requires lower inflation, slower growth or reduced government borrowing.
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