WASHINGTON —

The Federal Reserve hiked its benchmark lending rate this week for the seventh time this year, capping a year of intense pressure on the housing market that pushed mortgage rates above 7% for the first time since 2002.

But now that the Fed has signaled a softer approach to cooling the economy instead of rolling out bumper rate hikes, potential home buyers are left to wonder: Will mortgage rates come back down? Or have buyers missed their chance?

No one knows exactly where mortgage rates will go in the months ahead. But most experts agree that we have seen the end of 3% mortgages for some time.

Mortgage rates have run up so far and so fast this year that many would-be homebuyers can no longer afford to buy a home. At the end of 2022, when rates were at 3%, few predicted that just a year later rates around this week’s 6.33% would come as a relief, having dropped from over 7%.

After starting the year at an average 3.22%, according to Freddie Mac, the 30-year fixed-rate mortgage took off last spring as the Federal Reserve embarked on a historic campaign to battle decades-high inflation by raising interest rates. By fall, mortgage rates had more than doubled, eventually topping 7% in October. Rates have receded slightly in recent weeks, but loans are still expensive — especially compared to the historically low rates buyers were getting during the pandemic.

Home shoppers have watched their buying power evaporate, with higher rates adding hundreds of dollars onto what they would pay each month.

High mortgage rates remain the primary impediment to home buying, according to a recent buyer and seller sentiment survey conducted by Fannie Mae. Homebuying and home-selling sentiment are both significantly lower than they were last year.

Based on the survey, people in the real estate market continue to expect mortgage rates to rise but home prices to decline, said Doug Duncan, Fannie Mae senior vice president and chief economist.

He said he expects mortgage demand to be dampened by affordability challenges, while “homeowners with significantly lower-than-current mortgage rates may be discouraged from listing their property and potentially taking on a new, much higher mortgage rate.”

Is this the new normal?

While the Fed’s rate hikes are expected to continue, many analysts anticipate they will be smaller than the recent bout of three-quarter-point hikes and will start to taper off as inflation starts to cool, which should mean mortgage rates will likely come down too.

The Fed does not set the interest rates borrowers pay on mortgages directly. But its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

If rates do drop, just how low will they go?

“If inflation continues to decelerate over the next several months, mortgage rates will likely stabilize below 7%,” said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors. “That’s still double the previous year’s rate, but it’s better than an 8% rate, which is the historical average for the 30-year fixed mortgage.”

Looking ahead, Melissa Cohn, regional vice president at William Raveis Mortgage, said buyers should expect rates to level off in 2023 around where they were in the years before the pandemic — around 4% or 5%.

“We had an active and healthy real estate market then,” she said.

But Cohn said she does not expect a “meaningful” decline in mortgage rates until the third or fourth quarter of 2023. “Mortgage rates will drop a bit in December, we’ll see a brief flurry of activity, but there are likely to be more increases in the new year.”

And don’t expect to see rates drop at the same speed at which they rose this year, she said.

“We have to remember mortgage rates come down much slower than they go up,” said Cohn. “Banks will want to see proof that rates are meaningfully coming down and not a one-shot wonder.”

The weekly swings in mortgage rates this year have been about three times the size of those seen in a typical year, said Danielle Hale, chief economist at Realtor.com. The Fed’s extra-large rate hikes aren’t the only thing causing that.

Economic uncertainty is creating a larger gap or “spread” between the 10-year Treasury yield and mortgage rates. Typically, mortgage rates are about two percentage points above the 10-year Treasury yield, but recently the gap has been wider.

The main driver of the widening spread is greater interest rate risk, according to a recent report from the Urban Institute.

“The uncertainty about the effects of Fed policy to date and about the trajectory of future policy has resulted in large movements in interest rates,” wrote Laurie Goodman and Michael Neal, the report’s authors.

Consumer mortgages are packaged and sold off to investors. The higher myeortgage rates are, the more money investors can make. But as rates fall, more homeowners will choose to prepay their mortgages or refinance, making the loans less attractive to investors.

“Volatility increases the level of mortgage rates, compared to Treasury rates, because of the prepayment option,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business. “If you’re in a new loan at 7% and rates go to 6%, you may choose to prepay and refinance into a lower rate.”

It is abnormal to have such a large spread, said Lawrence Yun, chief economist for NAR, adding that other times when the spread was wider were during the 2008 financial crisis and the early days of the pandemic.

“Hopefully this large spread will dissipate by the spring home buying season,” he said. “If so, maybe buyers will face mortgage rates in the 5’s.”

What buyers can expect

Lisa Sturtevant, chief economist at Bright MLS, a multiple listing service in the mid-Atlantic region, also expects mortgage rates to fall further in 2023, but she doesn’t expect them to drop quickly.

“We were in unprecedented territory with rates under 3%,” she said. “There is no reason to suggest we will be back there. But they will be down from where we’ve been.”

“Housing market activity will continue to be relatively sluggish — even if mortgage rates do begin to come down — since so many existing homeowners are locked into sub-3% loans and will still not be eager to move into a higher rate,” she said.

As a result, the inventory of available homes for sale will remain tight into 2023. In many markets this could guard against prices dropping by a significant amount.

“Prospective buyers may be tempted to try to ‘time’ rates to jump into the market when rates dip,” she said. “But timing rates is difficult.”

Instead, would-be buyers should shop around, getting quotes from multiple lenders, including different types like a large national bank, an online lender or a community bank or credit union.

“There is a lot of variability in rates, terms, and mortgage products in this changing market,” Sturtevant said. “It is more important than ever that buyers compare offers from different lenders to find the financing that works best for them.”

The average rate for a 30-year mortgage in the U.S. is down to 6.15%, according to Freddie Mac. That's the lowest since the week of Sept. 15, 2022. However, the rate is still 2.59% higher than a year ago.

Higher interest rates can add hundreds, if not, thousands of dollars to monthly payments.

Experts say the higher interest rates are a factor in sliding home sales.

According to the National Association of Realtors, pending home sales were down for the sixth month in a row in November.

"Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home," said NAR Chief Economist Lawrence Yun. "Falling home sales and construction have hurt broader economic activity."

People who can afford to pay off their homes in 15 years can get better rates. The average rate for a 15-year mortgage is 5.28%, according to Freddie Mac. While that's the lowest it's been since Sept. 2022, it's also 2.49% higher than a year ago.

After weeks of increases that pushed mortgage rates close to 4%, the climb took a break last week.The 30-year fixed-rate mortgage averaged 3.89% in the week ending Feb. 24, down slightly from 3.92% the week before, according to Freddie Mac.Even with this decline, mortgage rates have increased by more than a full percent over the past six months, said Sam Khater, Freddie Mac's chief economist."As we enter the spring homebuying season with higher mortgage rates and continued low inventory, we expect home price growth to remain firm before cooling off later this year," he said.This past week, factors including geopolitical uncertainty weakened rates on 10-year Treasuries, said Danielle Hale, Realtor.com's chief economist, pushing rates down."As the world reacts to developments in Ukraine, the uncertainty will likely mean a pause in the recent pace of increases," she said.Still, mortgage rates remain 84 basis points higher than just 9 weeks ago as expectations for economic growth, inflation and monetary policy have gone through a major reset, Hale said.There have only been two similar spikes in recent history, she said: One immediately following the 2016 election, when rates jumped 85 basis points in 10 weeks, and the other during the 2013 'taper tantrum,' when rates surged 116 basis points in 11 weeks."In both cases, home sales momentum slowed in the following year due to the impact on affordability, since rising rates mean higher homeownership costs even if home prices are unchanged," Hale said.This is especially true for those putting a smaller amount of money down on a home, Realtor.com found.A 3.9% interest rate on a 30-year, fixed-rate mortgage for a typical $375,000 home with a 10% down payment translates to monthly payments of $1,592. That is about $228 higher than in December 2020, Hale said. For a buyer putting down 20%, the monthly payment is $1,415 or $203 more.Higher costs of homeownership ultimately impact a buyer's ability and interest in home buying.Applications for mortgages dropped to their lowest level since December 2019 last week, according to the Mortgage Bankers Association."Higher mortgage rates have quickly shut off refinances, with activity down in six of the first seven weeks of 2022," said Joel Kan, MBA's associate vice president of economic and industry forecasting."Purchase applications, already constrained by elevated sales prices and tight inventory, have also been impacted by these higher rates and declined for the third straight week," he said.The monthly mortgage payment on the typical U.S. home rose 31% in the last year, according to an analysis by Zillow, as skyrocketing home prices and rapidly rising mortgage interest rates delivered a "one-two punch" to home buyers' budgets.In January 2021, a buyer purchasing the typical U.S. home, which was then worth $271,650, with a 20% down payment and a conforming, 30-year, fixed-rate mortgage, would have paid $885 a month, Zillow found. By this January, after the typical home rose to $325,667 and mortgage interest rates shot up, that same payment had risen 31% to $1,162 a month.According to Zillow, that average monthly mortgage payment is the highest on record. It is even higher than the record set in July 2006 of $1,118, when mortgage rates were a whopping 6.76%.Higher borrowing costs will likely push buyers to seek out lower-priced homes, according to the analysis by Jeff Tucker, senior economist at Zillow, meaning buyers may move to a more affordable area, try to wait out rates or delay a home purchase altogether.

This week the National Association of Realtors reported that median existing-home sales went up at a pace of 15.4% on a year-over-year basis. The median home price for a home in January was $350,300. It was the highest median price on record for the month of January, as CNN reported.

In December, Zillow predicted that the 12-month rate of home price growth would drop by 11%, but then revised that forecast saying that 2022 would finish up 16.4%. Now the company is predicting that the year-over-year rate for growth of home prices could peak at 21.6% by May.

According to the National Association of Realtors, in 2021 around 25% of homes, that sold, had one offer, but 75% had more than one offer.

And even with the price hikes, buying a home may still be a smart move in 2022 for some. The trade publication Mortgage Reports said that buying a home could work for investors, given "how inflation will push rent prices higher."

Jess Kennedy, a co-founder and COO at Beeline said, "When you look at where the housing market is right now, you still see big gaps between available supply and demand. Until that demand is lowered due to rising rates, housing prices won’t go down."

Kennedy said, “As supply and demand come into line with one another, we will see a normalization of the market but I don’t anticipate that housing prices will come down – they just won’t continue to grow exponentially as they have in the past year. In the short term as buyers look to find a property before higher rates impact them, we could actually see home prices driven higher.”

By the end of January, for sale home inventory fell to an all-time low of 860,000, CNN reported. Which was down by 16.5% from last year.

As NAR reported, the current environment has become even tougher on first-time home buyers. These new buyers accounted for a smaller share of the market than before, at around 27% according to the REALTORS Confidence Index Survey.

The survey found that homebuying demand outpaced supply, and that caused properties to stay on the market for a shorter amount of days compared to a year ago. Last month houses averaged days on the market, compared with 21 days a year before that. The group said that 79% of property listings stayed on the market for less than a month.

The CEO of Better.com, an online mortgage lender, will be spending time away from the company.

A letter from the company's board of directors, which was obtained by Vice, says the decision was made after "very regrettable events over the last week."

Vishal Garg faced backlash after firing approximately 900 employees over Zoom last week.

During the Zoom call, Garg told the employees that his decision to reduce the company's workforce was made due to changes in the housing market.

Following the backlash, Garg apologized.

"I realize that the way I communicated this news made a difficult situation worse," he said. "I am deeply sorry and am committed to learning from this situation and doing more to be the leader that you expect me to be."

The board said it has brought on an independent 3rd party firm to do a leadership and cultural assessment of the company.

They plan on assessing the recommendations to improve the culture at the company

"We have much work to do and we hope that everyone can refocus on our customers and support each other to continue to build a great company and a company we can be proud of," the board's letter says.

Better.com CEO Vishal Garg, who laid off 900 employees over a Zoom meeting that lasted less than three minutes, is taking time off from the company, Vice reported."If you're on this call, you are part of the unlucky group that is being laid off," Garg said on the Dec. 1 webinar. "Your employment here is terminated, effective immediately," he told them.Garg's leave is also effective immediately, according to a Friday email from the company's board of directors, and day-to-day operations will be taken over by the company's CFO, Kevin Ryan. Better.com added that it is hiring a third-party firm to do a "leadership and cultural assessment," whose recommendations "will be taken into account to build a long-term sustainable and positive culture at Better."CNN Business has viewed the email and has asked Better.com for comment. "The recommendations of this assessment will be taken into account to build a long-term sustainable and positive culture at Better," the email said.The online mortgage company's mass layoff affected about 9% of its staff. Just days later, three of the company's top communications executives resigned, according to multiple media reports.In a later post on the professional network Blind, Garg accused the fired employees of "stealing" from their colleagues and customers by being unproductive and only working two hours a day, according to Fortune, which confirmed those sentiments in a later interview with the CEO.In a Dec. 7 letter addressed to the Better.com team, Garg apologized for the way he handled the layoffs, and for making "a difficult situation worse." He added, "I failed to show the appropriate amount of respect and appreciation for the individuals who were affected and for their contributions to Better," the letter reads. "I own the decision to do the layoffs, but in communicating it I blundered the execution. In doing so, I embarrassed you."

Millions of Americans have not been able to pay their mortgages in over a year, and fortunately, many are in mortgage forbearance. However, most of those forbearance periods end in just a few months and many could be in danger of losing their homes.

According to the Consumer Finance Protection Bureau (CFPB), at least one million Americans will be in “imminent danger of foreclosure” by October, and by December, that number could rise to more than 2 million.

“This is sort of an unprecedented situation,” said Mark McArdle, assistant director of mortgage markets at the CFPB.

The CFPB is a government agency that was created after the 2008 housing crisis and is charged with preventing another housing crisis this year.

"A lot of this depends on income and whether folks get their incomes back,” explained McArdle. “If they do, there are a lot of interesting tools out there to help them.”

The CFPB issued a warning this month to banks, essentially asking banks to start working with homeowners to prevent foreclosures.

The agency suggests banks do the following: increase staff, address potential language access issues for non-English speaking homeowners, start contacting borrowers before the foreclosure period ends, and give borrowers options.

The CFPB has approved a streamlined process for loan modification to make this option easier for banks and borrowers.

“We want servicers to know that we are paying close attention,” said McArdle. "This is our number one priority to make sure servicers treat borrowers fairly, that they evaluate them for all options and that they use all the tools at their disposal.”

To ensure that, the CFPB is also proposing a rule to stop banks from filing any foreclosures until the end of the year. After a brief public comment period, it’s expected to be approved by the end of summer and banks could face hefty fines if they do not comply.

The CFPB said it will monitor, in real-time, whether banks and services are following the guidance. Homeowners with potential issues could file complaints directly on the CFPB’s website.

“The jury is out on how effective the enforcement action will be, but it is certainly better than sitting on the government's hands and doing nothing,” said Patricia McCoy, a law professor at Boston College Law School.

McCoy was the first head of the CFPB’s Mortgage Markets unit.

She recommends homeowners protect themselves further by proactively reaching out to the mortgage service or at least pick up the call when they make the required effort to reach out to you.

McCoy also suggests asking for an evaluation. The earlier you do it the better chance you won’t get jammed up with millions who will be coming off forbearance at the same time. To further protect themselves, homeowners should document all contact with their servicer or bank. It’s important to note the name of the person you talked to, the date, time, and a note about the conversation.

“Last piece of advice: there are free housing counselors in every state,” said McCoy. “They can help you. They can be your counselor through this process.”

The Consumer Finance Protection Bureau has a ‘find a housing counselor’ tool on its website. You simply put in your zip code and will be given the information on a free housing counselor near you.