We may earn a fee if you click on the links below. Compensation does not determine ranking. Not all brands are included. Learn more.

Published: May 01, 2024 7 min read
An increasing graph made up of piggy banks, percentage and dollar signs, and houses.
Money; Getty Images

Higher interest rates are increasing pressure on homebuyers who are already facing a challenging housing market. Many would-be buyers are understandably putting purchasing plans on hold, but there are no signs mortgage rates will drop significantly in the near future, and there are some sensible steps to take if you want to become a homeowner soon.

Mortgage rates surged past 7% for the first time this year on April 18 and continued to climb last week. According to Freddie Mac’s benchmark survey, the rate on a 30-year, fixed-rate loan is averaging 7.17% — more than half a percentage point higher than at the start of the year. And the upward trend may not be over.

Len Kiefer, Freddie Mac’s deputy chief economist, says it’s hard to predict just how much higher rates could rise, given the volatility in the market. A lot depends on data regarding inflation, which is proving to be stickier than everyone hoped for, and market expectations as to when the Federal Reserve will start cutting short-term interest rates.

“Given the current [economic] trajectory we’re on, it’s looking like there’s still some upward momentum,” Kiefer says. “In the very near term, we’ll probably see these rates be at the current level or a little bit higher.”

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
Shopping for a new home? Find out how much you can afford today.
Mortgage Experts at Rocket Mortgage (NMLS #3030) are available to get you started on your home-buying journey with solid advice and priceless information. To find out more, click on your state today.
HawaiiAlaskaFloridaSouth CarolinaGeorgiaAlabamaNorth CarolinaTennesseeRIRhode IslandCTConnecticutMAMassachusettsMaineNHNew HampshireVTVermontNew YorkNJNew JerseyDEDelawareMDMarylandWest VirginiaOhioMichiganArizonaNevadaUtahColoradoNew MexicoSouth DakotaIowaIndianaIllinoisMinnesotaWisconsinMissouriLouisianaVirginiaDCWashington DCIdahoCaliforniaNorth DakotaWashingtonOregonMontanaWyomingNebraskaKansasOklahomaPennsylvaniaKentuckyMississippiArkansasTexas
View Rates

How much higher could mortgage rates go?

Most early-year forecasts predicted that mortgage rates would start moving in a slow downward trend throughout the year. While those outlooks seemed to be on the money during the first two months of the year, the opposite has been true in recent months.

According to Bob Smith, head of real estate for Advisor Credit Exchange, for at least the remainder of the year, “Rates are going to be bounded in a range . . . probably in the 6%s, low 7%s.”

It’s unclear when inflation will finally be under control, meaning mortgage rates will probably remain volatile for a while before settling down.

In the long term, Kiefer and Smith see inflationary pressures easing later this year. That should help nudge mortgage rates lower — just “not as much as we had thought,” Kiefer says.

Impact on homebuyers, sellers and the housing market

High mortgage rates are hitting buyers right in the middle of the spring buying season. According to Freddie Mac, about 36% of all home sales take place between March and June, making these months the busiest time in the housing market.

Elevated mortgage rates, combined with high home prices and a lack of enough inventory to meet buyer demand, have led to record-high monthly payments. Homeowners insurance costs are at all-time highs as well, up 20% in the past year. These factors are pushing many would-be buyers to put their plans on hold. According to a report by BMO Financial Group, 71% of would-be homebuyers are waiting for rates to drop before buying a house.

Potential home sellers are also feeling the crunch, especially those who bought when rates were much lower. The cost of obtaining a new mortgage at a higher rate is keeping owners locked into their homes.

Despite the challenges, buyers shouldn’t panic. “Rates are, for a large part, temporary. At some point, [they] will go down,” says Scott Bridges, chief consumer direct production officer at lender Pennymac.

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
Unlock the Best Interest Rate for You
New Loan Type
Loan Amount

Find Your Actual Rate at Rocket Mortgage (NMLS #3030) Today!

View Rates
Interest rate estimates for:
Poor/Fair Credit
7.28% - 8.76%
Good/Very Good Credit
6.76% - 8.59%
Exceptional Credit
6.76% - 7.76%

How buyers can cope with high mortgage rates

Instead of worrying about things that are out of your control, it’s best to focus on the fundamentals of homebuying to see if purchasing a home right now is the right move (regardless of the rate). Here’s what you can do:

Take care of your credit score.

Check your credit score and try to improve it while you're shopping for a home. Buyers with better credit generally have access to lower mortgage rates. On the other hand, taking on extra debt during this time will reduce your score as well as your debt-to-income ratio, which will cause lenders to offer a higher interest rate on a mortgage. “When rates are higher, every bit of debt counts,” says Bridges.

Be prepared to negotiate.

Higher mortgage rates could move some buyers out of the market, which means more opportunities and less competition for those who can afford to buy. Don’t be afraid to lowball a little bit. With fewer buyers, you may be able to negotiate a lower price or concessions with a motivated seller.

Cast a wider net to find a home.

Ideally, you’ll find a move-in ready home that fits your budget. The reality is that homes requiring little to no work attract a lot of attention and you may find yourself in a bidding war. Don’t be afraid to look for homes that may need some TLC. The asking price is likely more negotiable, and you may find you can use the money you save to fix up the home to your taste.

Know how much house you can afford.

Set a budget you’re comfortable with. Use a housing affordability calculator to get an estimate of how much you can pay towards a home purchase. You can also get loan estimates from several different lenders to find the best rates and loan terms. And remember, the maximum amount a lender is willing to lend isn’t necessarily what you should spend on a home. Set a lower budget if it makes better financial sense or if you want to have some wiggle room if you have to compete against other buyers.

Don’t rush.

A house is likely the most amount of money you’ll ever spend. Bridges says that homebuyers typically make mistakes when they rush the process. Take the time to inspect the property and ask to see a home appraisal. Make sure it’s the right fit for your needs at the right price for you.

“Try to do things patiently,” says Bridges. “Don’t overpay, and don’t panic.”

Ads by Money. We may be compensated if you click this ad.AdAds by Money disclaimer
A low credit score can negatively impact your mortgage application and interest rate.
The good news is that credit repair companies, such as Credit Saint, may be able to help you increase your credit score in within a few months!
View Plans

More from Money:

8 Best Mortgage Lenders of May 2024

What to Look for When Buying a Home

The Cost of Buying a House Reaches a New Record High

Ads by Money. We may be compensated if you click this ad.Ad
Imagine finally owning your dream home — Rocket Mortgage (NMLS #3030) can help!