Mortgage rates have climbed in recent weeks, putting the squeeze on homebuyers and borrowers. What’s next after the Fed’s big move?
The Federal Reserve is back in rate-hiking mode after three years without an increase – and while it’s not clear where mortgage rates are headed next, borrowers have been feeling the pinch recently due to rising bond market expectations of a hike.
Ten-year Treasury yields, a key driver of fixed mortgage rates, have ticked steadily upwards over the past several weeks, bringing the average 30-year fixed rate perilously close to 7%, according to the latest applications and rate data from the Mortgage Bankers Association (MBA).
Mortgage borrowers mightn’t be as closely attuned to Fed decisions as members of the mortgage industry, but they’ve certainly noted the recent jump in rates, according to Sonoran Lending president and senior loan officer Jay Lessard (pictured top).
“We haven’t seen a significant increase in calls specifically about the Fed decision,” he told Mortgage Professional America. “Most consumers aren’t necessarily following the Fed meeting day to day, but they’re feeling the effects of higher rates and the overall cost of carrying debt.”
That recent jump in rates has filtered through to new conversations between brokers and their clients, Lessard said, as homeowners look to consolidate higher-interest debt and shore up their finances.
“Credit cards, auto loans, and other monthly obligations have become increasingly expensive, so we’re having more conversations about using home equity through HELOCs or fixed-rate second mortgages to improve monthly cashflow and get their finances in a better position,” Lessard said.
“So, while the Fed decision itself may not be driving the phone calls, the financial environment surrounding it certainly is.”
‘I don’t think it will push everyone to the sidelines’
It remains to be seen whether the Fed’s decision will soothe financial markets enough to move bond yields lower and ease mortgage rates away from the 7% tipping point.
But even if rates stay elevated, Lessard doesn’t anticipate a big housing market cooldown – mainly because there are plenty of buyers who are less focused on rate fluctuations than on their immediate goals and the need to move.
“I do think the recent rise in bond yields and mortgage rates will cause some buyers to step back temporarily, particularly those who are already stretched from an affordability standpoint,” he said. “But I don’t think it will push everyone to the sidelines.
“There is still a significant amount of pent-up demand from buyers who have been waiting for rates to improve. At some point, life events like getting married, having children, relocating or simply needing more space outweigh trying to perfectly time the interest rate market.”
Housing market faces a pivotal few months as challenges loom
War in the Middle East, oil price turbulence and the trade dispute with Canada are all expected to rumble on in the months ahead – and that means a “volatile” spell for the housing market will probably continue between now and the end of 2026, according to Lessard.
Much will hinge on whether that US-Iran conflict can be wrapped up quickly, he said. “If we see tensions ease and oil prices begin to normalize, that could provide some relief to the bond market and potentially mortgage rates,” he said.
“On the other hand, a prolonged conflict that keeps energy prices elevated could make it more difficult for inflation to improve and keep rates higher for longer.”
That’s not to say the outlook is uniformly negative. Pent-up demand has built in many markets, while buyers have more negotiating power elsewhere than they did a few years ago – meaning those who are in a position to purchase can often strike a good deal.
What’s more, Lessard said most borrowers have long accepted that COVID-era interest rates are firmly a thing of the past.
“I think we’ll continue to see consumers adjust to the current rate environment rather than waiting indefinitely for dramatically lower rates,” he said. “Ultimately, I think the rest of 2026 will be less about waiting for the perfect interest rate and more about finding the right opportunity and structuring the financing correctly.
“If we get some stability in the Middle East, softer energy prices and some relief in bond yields, I think there are a lot of buyers waiting on the sidelines who could come back into the market fairly quickly.”
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