Mortgage rates increased this week, remaining over 7% for the sixth consecutive week.
The 30-year average mortgage rate rose to 7.19% this week from 7.18% the week before, according to Freddie Mac. The increase comes after the Federal Reserve on Wednesday signaled its benchmark interest rate will remain higher for the near future.
Mortgage rates have played a major role in today's unusual housing market. Many buyers have retreated due to high borrowing costs, while many homeowners refuse to sell their homes because they currently have a much lower rate.
"Mortgage rates that doubled last year have brought housing affordability to 40-year lows and throttled supply," Orphe Divounguy, Zillow's senior economist, said in a statement, "As if buyers didn't have enough problems, volatility in rates this year has made it difficult to plan and budget for a mortgage payment."
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
On Wednesday, the Fed released updated forecasts that suggest the fed funds rate will stay high for longer — possibly through 2026 — after the central bank maintained the current range between 5.25% and 5.5%. The Fed also indicated that another quarter-point hike could be on the way this year.
"With market expectations coalescing around the idea of 'tighter for longer' monetary policy, the Fed's updated outlook offered telling clues," Danielle Hale, Realtor.com's chief economist, said. "The 2023 year-end projection [benchmark rate] remains at 5.6%, meaning that another rate hike before year's end is not only on the table, it is consistent with the median viewpoint."
While fixed mortgage rates don't directly track the Fed's rate, they do follow the yield on the 10-year Treasury, which has risen alongside the central bank's rate hikes. That means mortgage rates could increase further.
Read more: What the Fed rate-hike pause means for mortgage rates and loans
"In the short run, it's possible that mortgage rates may go up to 8%," Lawrence Yun, the chief economist of the National Association of Realtors, said on Thursday after the group released its existing home sales data for August.
That report also showed that sales of previously owned homes declined 0.7% from July to an annualized rate of 4.04 million, marking the third slowest pace of the current housing cycle.
Inventory was also down, reflecting the reluctance of current homeowners to sell. Only 1.1 million units were available for sale at the end of August, some 0.9% fewer than a month go and down 14.1% from one year ago, NAR reported.
Those inventory woes could only get worse if mortgage rates track higher. Even homebuilders are feeling more pessimistic after they experienced a boost in activity this spring as buyers searched for more options.
More homebuilders consider housing conditions as poor versus good, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), with confidence retreating for the second straight month in September, largely because of rates over 7%.
"I expect the number of homes for sale to decline this year," Hale said, "and this tension to continue to be a damper on the number of homes for sale and thus home sales transactions."
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).