US Mortgage Rates Expected to Hold Above 6.5%

Mortgage rates in the United States are projected to remain elevated, with new forecasts pointing to an average of 6.60% over the next two quarters. This figure represents a sharp increase from the 6.30% predicted in June, signaling a slower path to relief for homebuyers. The average 30-year rate has climbed by nearly 70 basis points since late February, reaching approximately 6.85%. These levels track the rise in 10-year US government bond yields, which recently breached the 5% threshold.

Housing market activity is expected to remain constrained as a result. House price growth is forecast to be limited, with the S&P CoreLogic Case-Shiller 20-City Index showing a projected increase of only 1.5% this year. This marks a slight acceleration from the 1.4% growth recorded last year, which was the lowest in 14 years. Existing home sales are estimated to run at an annualized rate of 4 million units in the second half of this year, well below the 6.6 million unit high seen in early 2021.

Analysts Revise Rate Forecasts Upward

A Reuters poll of housing analysts, conducted from August 28 to September 14, revealed a consistent upward shift in expectations. Forecasts for mortgage rates over the next two quarters were raised to 6.60% and 6.52%, respectively. These figures are higher than the 6.30% and 6.24% estimates from the previous poll in June. Analysts have raised their projections in 12 of the 19 quarterly polls conducted since early 2022. This trend suggests that the housing market recovery driven by lower rates may be further delayed.

Bond Yields Drive Mortgage Costs

Long-term government bond yields are now the primary driver of mortgage rates, rather than Federal Reserve policy. Total US government debt reached a record 40 trillion dollars last month, increasing borrowing needs. Bond strategists are showing weaker confidence in the outlook for lower yields. Some respondents forecast that 10-year yields would breach 5% before any significant decline. This shift indicates that mortgage rates are increasingly influenced by inflation expectations and term premiums.

Housing Market Faces Affordability Pressure

The housing market has limited capacity to absorb further rate increases. When mortgage rates sit between 6.5% and 7%, pressure on buyer affordability intensifies. Transaction volumes are likely to weaken as a result. Even if the Federal Reserve begins cutting interest rates, mortgage rates are unlikely to fall quickly. They are expected to remain in the mid-to-high 6% range. This outlook complicates government efforts to revive the housing sector, as noted in data from GN auto markets and housing mortgage rate reports.