Mortgage rates are closing in on 7% for the first time since the beginning of last year, promising more pain for prospective home buyers already wincing at record-high home prices and an uncertain economy.

Last week, 30-year fixed rates averaged 6.76% according to Freddie Mac. But daily rates have jumped since then and already surpassed 7%, according to Mortgage News Daily, which uses a different methodology.

The milestone of 7%, while not itself significant in terms of affordability, will likely spook buyers even further, economists say, and add a disappointing punctuation mark to a year once expected to launch the housing market's recovery.

"A jump in rates like this will certainly cause [prospective home buyers] to pause," said Michael Fratantoni, chief economist at the Mortgage Bankers Association. "They may not go ahead and put in that contract or apply for the loan."

Mortgage rates as surveyed by Freddie Mac touched 7% in January 2025, but haven't stayed above that level for an extended period since the second half of 2023. Before 2022, mortgage rates hadn't hit 7% since 2001.

The 30-year rate tends to follow the 10-year Treasury yield, which on Monday briefly broke through 5%-a point it hadn't hit since late 2023.

The Federal Reserve is expected to raise the federal-funds rate on Wednesday for the first time in three years. A rate hike could lead to lower Treasury yields-and therefore mortgage rates-if the market believes that the Fed is taking inflation seriously. Or it could push yields higher if taken as a sign that the economy faces a real inflation problem.

This year's run-up in mortgage rates, driven primarily by the war in Iran, has kneecapped a housing market that is now well into its fourth year of stagnant sales.

The National Association of Realtors said last Thursday that sales of existing homes declined 2% in August over the previous month to a seasonally adjusted annual rate of 3.98 million, the lowest since June of last year.

Zillow economists once projected 4.3% growth in home sales for 2026. Now they are forecasting sales to be up 1.3% for the year and down 3.5% for the fourth quarter.

"The math for the rest of the year is going to be very challenging," said Zillow economist Kara Ng.

A difference of a few percentage points on a mortgage can translate to hundreds of thousands of dollars in interest over a 30-year loan. Home buyers also won't have an opportunity to refinance anytime soon with rates likely to stay elevated, economists say.

Home prices have been steadily rising, but many home buyers remain rate sensitive, even during this extended housing slump. In February, rates briefly dropped below 6%, sparking a flurry of buyer interest and optimism that a rebound in sales was on the horizon.

But after the U.S. and Israel attacked Iran, rates surged and have risen significantly since then. They jumped further in recent weeks as a bond selloff driven by fears of sticky inflation and soaring government deficits drove up Treasury yields.

Regan Black has been trying to sell his condo in Charleston, S.C., for months but has received little interest. It's close to the airport and positioned right above a golf course. It has much lower homeowners association fees than most other condos in the area. He listed it at $225,000 and cut the price by $10,000, but is now leaning toward taking it off the market and renting it out.

"I would assume that higher rates are keeping them on the sidelines," he said.

More sellers are following Black's lead amid weak buyer demand, Ng said. "The seller today is more willing to pack up and try again later," she said.

Real-estate agent Maria Bozza didn't have much to do at the open house she hosted on a sunny Saturday in Floral Park on Long Island, N.Y. She sat on the windowsill, occasionally going over to peek out through the front door, but the big red flag she had planted advertising the showing wasn't drawing much attention.

For previous showings of the house, a few buyers stopped by, but this time only one family came. Things have been getting quiet partially because of high interest rates, she said.

The seller originally listed the house for $900,000 but dropped it to $850,000 because offers weren't coming in. At current rates, a buyer could have close to a $5,000 monthly mortgage payment on the house, an expense Bozza suggested buyers manage by renting out the second floor as an apartment.

The return to near-7% mortgage rates sparks flashbacks to the end of 2023, when a rapid surge in rates sent home sales plummeting to an annual rate of 3.86 million.

The economy and housing market are different now than they were then-and not necessarily for the better.

For one, unemployment was at historic lows in 2023, and while inflation was high, so was wage growth.

"You had a lot of young, potential first-time home buyers in a really great situation, feeling great about their job prospects or their job situation and yet were running into this wall of getting outbid at every home that they were looking at," said MBA's Fratantoni.

But now, an inscrutable economy-featuring low hiring rates and mediocre wage growth, combined with a volatile geopolitical environment-has left prospective home buyers hesitant to make a big-ticket purchase.

"Wage growth is not that great. The job growth we're seeing is concentrated in just a few sectors," Fratantoni said. "I think that'll show up as less-than-robust demand on the housing side."

The good news for buyers is that inventory is much higher than it was in 2023. Then, homeowners-many of whom had mortgage rates in the 2% and 3% range-refused to budge in order to keep their rates. A dearth of available homes contributed to cutthroat competition and soaring home prices.

Now, inventory is near prepandemic levels because homeowners, getting impatient waiting for rates to fall, have decided to sell anyway. But 7% mortgage rates could hurt that progress.

Jonathan Pearl has kept his home in Marlborough, Mass., even though he has moved out of state for a job opportunity. The house is worth close to $900,000 and has more than 3,000 square feet on 1 1/2 acres of land, but his mortgage, with a rate of 2.875%, only requires he pay $2,300 a month.

He considered selling it, but he may return to the area and knows he won't be able to find anything comparable for so cheap. "It's not a strain on our finances. We can keep it for a few years and then figure it out," he said.

Plus, 7% mortgage rates could also weigh on new construction. Home builders have been offering significant mortgage-rate buydowns to spur sales volume in a stagnant market. Higher rates make those buydowns even more expensive, sapping home builder profits and reducing incentives to increase production.

Prospective buyers shouldn't hope for rate relief anytime soon, with a high mortgage-rate environment likely the new normal, economists say.

"You have to think as a mortgage borrower, you are competing against every government in the world and every other issuer as well," Fratantoni said.

For Rakesh Karki, who recently attended an open house at a two-bedroom cottage on Long Island listed for $550,000, sky-high prices in addition to surging mortgage rates make a home almost impossible for regular people to afford.

"Now it's almost 7%," he said. And with the cost of insurance and property taxes, "it's tough to deal with," he said.

Then he added, "AI is going to take all the jobs. You never know when you're going to lose your job."