Mortgage rates move closer to 7%, but housing demand holds up ahead of Fed meeting

Mortgage rates continued to climb this week and are now approaching 7% for locked loans across all borrower credit profiles. But home purchase and refinance demand hasn’t fallen steeply despite the increased affordability pressures.

On Tuesday, HousingWire‘s Mortgage Rates Center showed that rates for 30-year conforming loans averaged 6.94%, up 9 basis points from one week ago. Rates for 30-year jumbo loans also averaged 6.94%, up 10 bps in the past week, while rates for 30-year Federal Housing Administration (FHA) loans rose 8 bps to 6.63%.

Rates have increased gradually since bottoming out near 6.15% for 30-year conforming products in March. But last week’s application data from the Mortgage Bankers Association (MBA) showed that borrower demand remains resilient despite the upward trend, as applications were up 1.9% during the week ending July 17. Compared to the same period a year ago, refinance demand was up 7% while purchase demand was essentially flat.

“Mortgage applications rebounded last week despite mortgage rates increasing, reflecting the continued strength of homebuyer demand,” Bob Broeksmit, the MBA’s president and CEO, said in a statement. “As inventory improves in many markets, more prospective buyers are finding opportunities to enter the market even as borrowing costs remain elevated. While some economic uncertainty may persist in the coming months, housing demand and a growing supply of homes should continue to support purchase activity.”

What signal will the Fed send?

On Wednesday, the Federal Open Market Committee (FOMC) is set to complete its second meeting under the watch of Chair Kevin Warsh. It’s unlikely that the committee will change course from its current policy rate of 3.5% to 3.75%, with the CME Group‘s FedWatch tool showing 70% of interest rate traders predicting no change and 30% predicting a 25-bps increase.

“The Federal Open Market Committee is expected to leave the federal funds rate unchanged in July, but a hold is no longer a foregone conclusion,” said Sam Williamson, senior economist at First American. “Escalating tensions in the Middle East have renewed pressure on oil and gasoline prices, making a rate hike more plausible than it appeared just a month ago. Meanwhile, the labor market remains resilient, with initial jobless claims near historic lows.

“Against that backdrop, the bar for raising rates has fallen — and could fall further if higher energy costs begin spreading into broader prices.”

Charles Goodwin, vice president and head of bridge and DSCR lending at Kiavi, said recent inflation data that was softer than expected may keep benchmark rates in check this week. Goodwin noted that the largest increases in the Consumer Price Index (CPI) for June were tied to energy prices, meaning that a deescalation of tensions in the Middle East could equate to more transitory inflation gains.

During his first meeting as Fed chair, Warsh indicated a shift away from the forward-looking guidance that was a signature of his predecessor, Jerome Powell. The lack of guidance could push markets to react differently.

“We all, in our hearts, pray that we hear something from the Fed saying that it’s found a new way to tame inflation and lower rates, but that’s just not the reality,” said Melissa Cohn, regional vice president at William Raveis Mortgage.

“What I’m really looking to see is just how hawkish Warsh is, and because it’s his second meeting and press conference — if he holds one — if there’s more transparency. It’ll be interesting to see how he’s going to choose to continue to communicate to the general public.”

Affordability impacts and borrower strategies

Analysis released this week by First American found that housing affordability — measured by comparing home price appreciation to income and mortgage rate changes — shrank for a third straight month in July.

“Yet, the bigger picture remains encouraging,” Mark Fleming, the company’s chief economist, said in a statement. “Compared with one year ago, affordability remains meaningfully improved, up more than 6%. Household income growth continues to outpace house price appreciation, while mortgage rates remain 0.38 percentage points below year-ago levels, despite their recent increase.”

A HousingWire Data analysis released last week found that buyer demand decreased across most U.S. metro areas due to elevated mortgage rates. But lower-priced markets with properties priced below $300,000 bucked the trend. Inventory in that segment was up 4% year over year, a signal that “additional supply is still finding buyers rather than than accumulating.”

Below $300,000, absorbed listings were essentially flat year over year, making it the only price tier to avoid a meaningful decline. Inventory in that segment increased 4.0%, suggesting additional supply is still finding buyers rather than accumulating.

Cohn noted that while mortgage rates remain near a 13-month peak and are likely to stay there as long as the U.S.-Iran conflict persists, there are creative financing options for prospective homebuyers and their loan officers to consider. These include adjustable-rate mortgages (ARMs), interest-only loans, temporary buydowns and paying points.

For senior homeowners who are looking to tap into their equity for a variety of needs, higher rates have also impacted reverse mortgages by reducing principal limit factors and limiting how much of the home’s appraised value can be accessed upfront.

“Higher rates don’t just reduce what borrowers can access upfront — they change the long-term math on the product entirely, because every dollar left on the table compounds against you over time,” said Eric Bernstein, president and co-founder of Austin-based LendFriend Mortgage.

“What we’re seeing among wealthier clients is a more calculated approach: They’re not using reverse mortgages out of necessity, but as a deliberate liquidity tool when other assets are tied up or tax-inefficient to liquidate. For that segment, the rate environment is a friction point, not a dealbreaker — but it absolutely demands a more precise conversation about timing and structure.”