It seems mortgage rates can’t catch a break in 2022, despite a few pullbacks here and there.

However, those moments are often short-lived, and met with new highs not long after.

The 30-year fixed started the year in the low 3% range, and has since surpassed 6%, depending on the mortgage lender in question.

That has led to industry-wide carnage, including thousands of mortgage layoffs, along with sticker shock for prospective home buyers.

The question now is a 7% mortgage rate next? Or have we seen the worst of it?

Next Stop for Mortgage Rates 7%?

While 30-year fixed mortgage rates haven’t officially hit 6%, if you consider Freddie Mac the source, they sure are close.

During the last week, the popular loan program averaged 5.70%, down from 5.81% a week earlier.

Yes, it was an improvement from last week, but even Freddie Mac chief economist Sam Khater referred to it as a “pause” in the survey press release.

In other words, it could just be a brief respite before mortgage rates continue marching higher.

Similar to a stock market rally in a bear market, which erases itself the next day, mortgage rates have been trending decidedly higher.

So even if good news pops up one day, it’s usually absorbed via the broader negative picture within a day or two.

Ultimately, it’s hard to get too excited about any sort of mortgage rate rally at the moment, just like it’s hard to look at your stock portfolio or 401k.

Things May Get Worse for Mortgage Rates Before They Get Better

Once a trend starts, it’s hard to break. Early on, it seemed as if mortgage rates could reverse course.

But the longer and higher they went, the more it appeared any sort of hope for a meaningful turnaround was lost.

This is especially true given the fact that mortgage rates have the added pressure of mortgage-backed securities (MBS) being unloaded by the Fed.

On top of a highly inflationary environment, which is bad enough for interest rates, there’s the unwinding of the Fed’s Quantitative Easing (QE) program.

In short, the Fed used to buy MBS by the boatload, and has since stopped buying, and is now letting them run off when they mature.

Soon they could go one step further and sell MBS into a market that already has little appetite for them.

This means things could worse before they get better, assuming the Fed can’t get a handle on its big inflation problem.

If inflation does persist, which many expect, and the Fed continues to raise its target fed funds rate, interest rates on home loans could follow.

That means a 7% 30-year fixed could be in the cards at some point this year or next.

When Was the Last Time We Saw a 30-Year Fixed at 7%?

It has been a good couple of decades for mortgage rates. Too good maybe now that the industry is paying the price.

Assuming the 30-year fixed does creep up past 7%, it would mark the first time it surpassed that threshold since early 2002. Yes, a full 20 years ago.

For the record, the 1990s was mostly dominated by 7% mortgage rates, which were probably seen as cheap given the double-digit rates of the 1980s.

But we’re not quite there yet, and we might not get there. We still have to officially get to 6%.

The 30-year fixed last crossed the 6% line in May 2008, before rates trickled down to all-time lows.

Indeed, we’ve had about 14 years of absolutely stellar mortgage rates, and now it seems they’re making up for lost time.

As I wrote the other day, mortgage rates tend to go down during recessions, and one could be looming due to all the rate hikes and slowing economic growth.

But even if that happens, rates could surpass 6% and then 7%. Or even worse.

And that could make any housing correction a lot worse, potentially a housing crash.

Of course, mortgage rates alone aren’t necessarily to blame. There are times when interest rates go up and home prices follow.

However, the current inflationary environment isn’t good for the economy, and the layoffs have begun in earnest.

If we get a period of low growth and higher unemployment, it might not bode well for the housing market, as solid as it seems to be given the fundamentals.

But it’s still too early to know what happens next. Just don’t be surprised if a 5-6% mortgage rate looks good in hindsight.

(photo: mingusmutter)