As mortgage rates continue to climb, buyers are concerned when they'll hit their peak. Is 8% bound to be that number?
Last week, mortgage rates hit a three-year high—a headline that has been on repeat for several months.
In fact, in less than four months, the rate has risen a percentage point. The average rate on 30-year fixed home loans rose to 6.49% for the week ending July 9—now it stands at 7.40% for the week ending Oct. 8, up 12 basis points from 7.28% the previous week, according to Freddie Mac.
The question now becomes when will the rates hit a breaking point—and could that breaking point be an 8% rate?
Economists aren’t convinced that will happen, but the major drivers of the rate hikes also don’t seem to be letting up anytime soon.
The chances of an 8% mortgage in 2026
Those who watch the rates closest and know the history of our markets best agree that while rates have been on an upswing, the likelihood of an 8% rate this year is slim.
“Buyers should not be too concerned about rates hitting 8% by year end,” says Joel Berner, senior economist at Realtor.com®.
“The 30-year fixed-rate mortgage averaged 6.86% in September, and based on our research on rate volatility, that average moving up by 114 basis points is a 96th percentile result. This means that in only about 4% of three-month periods since 1972 have rates increased by that amount.“
“Is it possible to hit 8% before 2026 is up? Certainly, but this would be a noteworthy run-up for rates,” he adds
Keep in mind, mortgage rates usually follow the 10-year Treasury yields, with a little extra tacked on to cover lender risk. For the past month, global bond markets have been in the grips of a historic sell-off triggered by several economic issues, from the ongoing war in Iran to rising deficits to the race to build more data centers.
But those behind the money see things leveling out on that front.
Michael Wolf, a global economist at Deloitte Touche Tohmatsu Ltd., shared the firm's Treasury yield expectations over the next five years in a recent update from the Deloitte Global Economics Research Center.
"Stronger inflation, coupled with solid payroll growth, will likely cause the Federal Reserve to raise interest rates by the end of this year. However, the rates are unlikely to stay heightened for long. We expect the Fed to announce a rate cut before the end of 2027. We expect oil prices to move lower next year, which will cause inflation to move lower on a sequential basis," he wrote.
The last time 8% rates were in play
Rates got close to 8% in late 2023, reaching as high as 7.79% on Oct. 26, 2023, but they have not been above 8% since 2000.
But prior to that, the last time mortgage rates were in the 8% rate was in the mid-1990s.
At that time, the median sales price for a home was $115,810; today, it’s $424,500.
To compare the math, in order to put down 20% on a home in the '90s, you would have needed $23,162 for that median-priced home.
Today, you’d need $84,900. But that's only if you put down 20%, which is the real hurdle for most buyers.
The real problem for first-time homebuyers
If the current cocktail of elevated oil prices driving up inflation expectations, the sell-off occurring in the bond market, and continued fiscal deficits did push the rate to 8%, this would obviously be a much bigger strain on the market than it’s already facing.
“Buyers, especially first-time homebuyers, would have their budgets squeezed even further and be more reluctant to make a purchase,” says Berner.
While the youngest generation is still hoping for a significant drop in mortgage rates to make a move, the other issue facing them is the lack of funds for a down payment.
Gen Z, which we define as those born after 1995, have the lowest median savings-to-spending ratio relative to other generations, according to the latest findings by the Bank of America.
At just below 0.5, this indicates their median cumulative savings balances are less than their monthly median spending—and 42% of them admit to living paycheck to paycheck.
And there lies the problem. If a homebuyer doesn’t have enough money for a 20% down payment, there are still options to buy with lower money down, but the payments would be too high to manage at this elevated rate.
Realtor.com found in its latest down payment findings that the median down payment fell 9.2% year over year to $27,100, but the typical buyer’s estimated monthly payment is up 3.5% ($80) from a year ago and 74.2% ($1,012) from 2021.
With mortgage rates rising above 7%, the estimated payment could climb an additional $60 a month
And even if the money could be scraped together, rates going higher also means that the lock-in effect will stay, well, locked in.
“Existing-home sales, which are already floundering near three-decade lows, would continue to be suppressed,” Berner adds.
“Even more sellers would feel locked in to their lower rates; and it wouldn't just be the sub-4% owners, but the 5% and 6% owners as well, leading to fewer new listings on the market for those buyers to choose from. “