Economists at Fannie Mae are now predicting much higher mortgage rates through the end of 2026 and into 2027. It now puts the average rate on the 30-year fixed at 7.4% for the fourth quarter of this year and 7.5% through all of next year. It previously forecast 6.8% for the fourth quarter and 6.7% for all of next year.

The average rate on the 30-year fixed stood at 7.46% Tuesday, according to Mortgage News Daily, but will likely move higher today. Bond yields are rising after a hotter-than-expected inflation report.

Mortgage rates have been rising sharply since the start of September, as inflation remains stubbornly high and bond markets sell off due to several factors. The Federal Reserve also raised its benchmark rate for the first time in more than three years. Mortgage rates do not follow the Fed’s rate exactly, but they do react to how the central bank sees inflation going forward.

Mortgage rates loosely follow the yield on the 10-year Treasury, which has been rising sharply on higher oil prices and growing concerns in the global economy.

Higher rates have already put the housing market in an early deep freeze this fall. Pending sales, counted by signed contracts on existing homes, were down 8.5% in September year-over-year, according to Zillow. Mortgage demand continues to drop sharply, as buyers face higher prices and weakening affordability. Not only can fewer buyers now afford a home, but fewer can qualify for a mortgage.

Fannie Mae did not respond to requests for comment on its latest forecast.