After Decades of Low Mortgage Rates, Homebuyers Are Facing a New Normal

Two years after moving to Seattle for a new city planning job, Rey Sosa recently finally felt financially positioned to buy a home. He’s been dreaming of calling a single-family house with a yard and garage his own since 2022.

But after two months of searching and three years of casually browsing, he’s realized that dream may not become a reality. Sosa has found that homes within his budget would require him to move outside the city, commute over an hour and potentially buy in an area that doesn’t have the high-quality schools and infrastructure he’s looking for. Even making those concessions would entail spending more than 40% of his take-home pay on mortgage payments, more than the 30% financial advisors typically recommend. 

Now with mortgage rates above 7%, he said buying a home feels unattainable. 

“It made me reevaluate if I even want to buy a house any time soon,” Sosa, 32, said. “Maybe it’s just better to stay out of the market, watch what it does and reassess down the road if I want to enter homeownership.” 

Sosa is just one of the many Americans who feel this way. While 53% of respondents to a recent survey from FICO said homeownership represents financial stability and 57% equate it to independence, 62% of people who don’t own a home say doing so feels out of reach. Earlier this year, the Federal Reserve Bank of New York’s Survey of Consumer Expectations Housing Survey found that the average probability of buying a home and moving within the next three years was at 52.9%, the lowest level since 2014. And those results came out when mortgage rates were lower than they are now. 

High mortgage rates aside, home prices have reached eye-popping levels, existing homeowners aren’t keen to sell, and homebuilders are navigating high construction costs. 

Higher for Longer  

In early 2026, buying a home was starting to look realistic for many as the benchmark 30-year fixed-rate mortgage dropped below 6%, offering a glimmer of hope that the exceptionally low rates house hunters had gotten used to in recent decades could return. But the celebration was short-lived. Mortgage rates have climbed since then to hover around 7.4%. 

There are several factors that influence the rates on home loans. First is inflation, which is a main culprit for why mortgage rates have climbed since February, when the war with Iran started and pushed up oil prices and overall inflation. 

The Federal Reserve’s monetary policy also impacts mortgage rates, though it’s not as simple as a rate hike from the Fed leading to a mortgage rate hike. The Fed sets short-term rates, or what banks are charged for lending to one another overnight, not mortgage rates. But mortgage rates track 10-year Treasury yields, and when the Fed raises or lowers its benchmark interest rate, the move signals to investors what the central bank expects next from inflation and the overall economy. If investors think inflation could rise, they’re going to demand higher 10-year yields, which in turn pushes up mortgage rates (and if they expect inflation to cool, vice versa). In September, the Fed raised rates for the first time in three years, and traders expect it to do so again in December. The result is that mortgage rates could also stay higher for longer. 

That’s keeping prospective homebuyers out of the market. Pending home sales, which measure signed contracts on existing home sales, dropped 7.3% in September and are down 11.3% year-over-year, according to data from the National Association of Realtors (NAR). Lawrence Yun, NAR’s chief economist, said in a press release that market conditions weakened during the month due to fast-rising mortgage rates, and that while job growth and income gains can support home purchases, mortgages affect housing affordability more. 

A good rule of thumb is that a 1% change in mortgage rates changes purchasing power for buyers by about 10%, Nadia Evangelou, a principal economist and director of real estate research at NAR, told The Daily Upside. 

“So assuming the buyer wants to keep about the same monthly principal, moving from 6% to 7% is significant,” she added. 

Sticker Shock

Mortgage rates aside, housing prices are just too high for the average American. That’s in part because there aren’t enough homes being constructed to meet demand, thanks to labor shortages and rising costs of building, as well as regulatory barriers and land constraints, according to researchers at the Federal Reserve Bank of St. Louis. They say that since the 2008 financial crisis, the US is building “less housing per person than at almost any point in the postwar era.” Estimates suggest a shortage of 3 million to 5 million homes. 

Factor in that would-be sellers are reluctant to give up their lower mortgage rates, and housing prices are outpacing incomes, and you can see why homeownership seems impossible for many. 

How High Will They Go  

Evangelou doesn’t see mortgage rates falling significantly in the near future, and especially not to the 3-4% range that we saw just after the pandemic. 

“We expect the 7% to be the new normal,” she said. 

Economists at Fannie Mae recently said they predict the average 30-year fixed interest rate to be at 7.4% for the fourth quarter of this year and 7.5% through all of 2027. That’s significantly higher than their previous estimates of 6.8% for the fourth quarter and 6.7% for all of next year. Earlier this month, HousingWire surveyed mortgage executives about where they expect rates to be in six months, and 25% said just below 8% while 18% said above 8%. 

There are some more optimistic views: Goldman Sachs strategists, for instance, expect the 30-year fixed mortgage rate to decline to 6.4% by the end of next year on account of their dovish Fed forecast, according to a recent note. 

Worth the Wait? 

Despite how challenging it can be, homeownership is still one of the main ways Americans build wealth since you can build up equity in your home as (ideally) the value of your home increases, Evangelou said. 

Still, for many, high mortgage rates are a reason to delay. FICO’s study found that roughly three-quarters of prospective homebuyers say financial obstacles have caused them to delay or reconsider buying a home right now, with high mortgage rates being the top barrier. Seventy-two percent of potential homebuyers surveyed in July by Neighbors Bank say they’ve delayed their home search and are waiting an average of 13 months for mortgage rates to improve. Most are holding out for 5% mortgage rates, and 34% would pull the trigger immediately if rates dropped to their target.

But Fernando Ferreira, an economist and chair of the real estate department at the Wharton School of the University of Pennsylvania, said that while higher rates may make it harder for people to find credit, potentially requiring more paperwork and restricting down payments, he wouldn’t recommend waiting. That’s because consumption — as in, actually using your home — is more important than the long-term investment, and the extra cost of borrowing over the 30-year period is going to be “really small” compared to the benefits of moving to the house that you need. 

Plus, “if your rates increase in the future, because there is a scenario that rates increase even more, you’ll be happy that you took a 7% loan,” Ferreira said. And if rates drop, you can refinance. 

Evangelou agreed that waiting just because mortgage rates are high likely isn’t the right decision, since lower rates can also bring about more competition for what’s on the market, meaning that today’s buyers have some opportunities that could disappear in the future. 

“I would not look only at today’s mortgage rate,” she added. “Buying a home is usually a long-term decision.”