What Caitlin Fontecchio and her family have been attempting to pull off this year — selling their home in Worcester to buy a bigger, newly built house in nearby Warren — was already a delicate balancing act.
Then the global economy tipped the scales against her.
After steadily declining for more than a year, mortgage rates have soared in recent months, particularly in September, as the average on a 30-year fixed-rate mortgage is now at nearly 7.3 percent — the highest since 2023. The surge is adding potentially $1,000 to a monthly payment for a typical home purchase in Greater Boston.
It’s a huge financial blow to prospective home buyers. And suddenly, no one is coming to see Fontecchio’s home in Worcester. Two open houses for the place — a cozy, 2,500-square-foot colonial a mile from Union Station — did not draw a single prospective buyer, even after the family cut the price to under $450,000.
So in a state with so much pent-up demand for housing, taking on a mortgage has become so expensive that many moderate-income buyers have all but given up.
“It’s left me wondering: Is there something wrong with our house?” Fontecchio, 38, said. “We’ve tried to do everything the right way. Not even our agent seems to understand why it won’t sell.”
The market for home sales has been effectively frozen since early 2022, when mortgage rates began to soar after nearly a decade of decline. Rates more than doubled in a nine-month span in 2022 and have, for the most part, remained at those high levels, sidelining both would-be buyers and sellers daunted by the prospect of higher monthly payments on top of the region’s sky-high home prices.
There was a brief period of optimism earlier this year when the average for a 30-year fixed-rate loan slid below 6 percent for the first time in four years. Some sellers, including Fontecchio and her husband, dipped their toes back into the market.
But any modest progress has been swiftly erased in recent months.
Last week, the average on a 30-year fixed-rate mortgage was 7.28 percent, according to Freddie Mac, after months of steep increases. A combination of worrisome issues, including persistent inflation, volatile fuel prices from the war in Iran, and surging US debt levels, has prompted investors in the bond market to demand higher yields, and that’s flowed through to mortgage loans.
It’s a blow to housing affordability, as the higher rates mean higher monthly housing payments for new buyers. For families that had hoped they might have the means to afford a new place, the math has shifted dramatically.
“What you are effectively seeing when rates rise by that much, that quickly, is thousands of buyers being priced out of the marketplace,” said Theresa Hatton, CEO of the Massachusetts Association of Realtors. “You have a lot of people who maybe could’ve bought six months ago at 6 percent who are now realizing they’d have to pay $1,000 more a month on the same house.”
All that leaves people like Fontecchio and her husband, Anthony Pellechio, in limbo.
The couple — who together earn about $150,000 a year — see the problem from both sides as buyers and sellers. They bought their current home for $365,000 in 2020 and have fixed it up, with new windows, appliances, and solar panels.
But with two kids and a third on the way, they want a bigger yard, and Fontecchio longs for the quiet outside of the city.
They have a house in Warren under agreement — four bedrooms with a big yard that’s supposed to be complete in November, around the time Fontecchio is due to give birth.
But with interest rates rising, the couple slashed the asking price on their Worcester home to attract buyers. Any further concessions may mean they won’t have enough for the new house, which they’ve agreed to buy for just over $500,000.
The prevailing feeling, said Fontecchio, is disillusionment with the economy. She and her husband entered the job market during the Great Recession and have struggled with student loan debt. Now they’re trying to navigate a turbulent housing market that makes it difficult to take advantage of the equity they’ve built in their current home.
“It would be very disappointing to have come this far and lose out on our next home because of fuel prices and geopolitical instability,” she said.
Housing costs have long been high in Massachusetts, but grew especially fast over the last decade, driven by population growth, a surge in demand during the COVID-19 pandemic, and decades of underbuilding that made for a huge shortage of homes. Since 2016, home values in the region have grown by over 50 percent, according to one national index.
But homeownership was still relatively accessible during that stretch, at least for some middle-income families, because mortgage rates were historically low. During an 18-month period in 2020 and 2021, a 30-year fixed-rate loan averaged around 3 percent, according to Freddie Mac, the lowest point since the company began tracking rates in 1971. If you could afford a down payment, monthly mortgage costs were often lower than rents.
But higher mortgage rates have erased any semblance of affordability.
In August 2021, the typical monthly mortgage payment on a median-priced home of $780,000 in Greater Boston was about $2,554, according to Bankrate’s mortgage calculator. In February of this year, when the median-priced house in the region sold for around $852,500, that monthly payment was more like $4,137. And in September, after interest rates began to soar again, it jumped to $5,168.
There’s a mental hurdle that comes with the rise in rates too, said Paul Willen, a senior economist with the Federal Reserve Bank of Boston. For buyers who can afford it, “there’s no logical reason why 7 is any different from 6 percent,” he said. “But there may be some sort of psychological difference at 7 that’s just too much.”
For sellers, the higher rates feel like a cruel turn: many have much lower rates on their current home, so giving that up for such a significant step up is broadly unappealing, Willen said.
“For a lot of people, if they want to move, they’re looking at, ‘Well, how much can I afford?’” Willen said. “And the answer is: something much smaller than the house they’re in.”
Some sellers are taking a chance and putting their properties on the market anyway, said Mary Gillach, principal of the Gillach Group at William Raveis in Brookline. But it’s harder to predict if they will sell because so many buyers, especially middle-income families looking for a first home, simply cannot afford them.
Homes that do sell quickly, Gillach said, are in a rare atmosphere: above $3 or $4 million, as their likely buyers have the means.
Gillach listed a home in Brookline recently for $5 million that went under agreement within 24 hours, she said. But she can’t find a buyer anywhere for a home on Pond Street in Jamaica Plain priced at $1.7 million.
Of course, there is more at play in the state’s housing market slowdown than just interest rates. The general state of the economy and the rising cost of everyday goods and services are weighing heavily on those who may otherwise be ready to purchase their first place.
It is a vexing problem, said Melvin Vieira Jr., an agent at Re/Max Real Estate Center in Boston, because there is little anyone in Massachusetts can do about the global instability bringing down the housing market.
“Uncertainty can be a powerful force when it comes to the housing market,” he said. “And right now, we have plenty of it.”
Andrew Brinker can be reached at andrew.brinker@globe.com. Follow him @andrewnbrinker.