Mortgage rates crossed 7% this week, the first time we've seen that number since January 2025. Here's what happened in the Phoenix market last time, and what's different about this round for anyone buying or selling in the Valley soon.
Thinking back to the last time we had 7% rates
January 2025. The 30-year fixed rate climbed to about 7.25% by the middle of that month, and it stayed elevated into February. Not a one-day spike, a few weeks of sustained pressure.
What happened then vs What's happening now?
In January 2025, the driver was inflation that wouldn't cool off and a Federal Reserve that kept holding off on rate cuts. It was a slow grind everyone could see coming. Forecasters had already priced that in and expected rates to settle into the upper 6% range for the rest of the year rather than get worse.
This time is different. Rates had actually dipped below 6% in late February, right before the war in Iran started on February 28. Oil prices jumped more than 55% in the month that followed, and every new round of conflict since then has pushed oil higher, reignited inflation fears, and sent bond markets (which mortgage rates track) back up. It's a different kind of trigger than last time, tied to an open-ended conflict instead of a Fed timeline everyone already understood.
How the market reacted back then, and what we learned
When rates hit 7.25% in January 2025, the Phoenix market didn't react evenly. It split.
Homes over $1 million kept selling like nothing happened. Comparing the same three weeks in January, year over year, sales under $1 million were up just 1.2%. Sales over $1 million were up 57.7%. Sales over $5 million were up 157%. Scottsdale, Paradise Valley, and Cave Creek barely moved off seller's market territory the entire month.
The affordable end of the Valley told a different story. Buckeye, Surprise, Maricopa, and San Tan Valley all tipped into buyer's market territory. Maricopa hit 9 months of supply, the worst it had seen since 2008, and prices there actually started dropping.
That window didn't stay open long. Rates eased slightly in early February, and the buyer leverage in those cities started closing back up within a few weeks. The buyers who used that window, negotiating seller credits or a rate buydown instead of just asking for a price cut, came out ahead of the ones who waited to see what would happen.
Builders leaned hard on rate buydowns to keep new home sales moving during that stretch. Resale sellers can offer the same thing if their agent knows how to structure it. It's not a new-construction-only tool.
The outlook now vs. then
In January 2025, forecasters were fairly confident rates would settle into the upper 6% range and stay there. That's roughly what happened.
This time, that confidence isn't there. Some economists think we're already functionally at 7% and could go higher from here, tied to how long the conflict lasts. Others think it holds close to where it is now. Nobody's predicting a fast drop back into the 6% range the way people expected last time. That uncertainty is the real difference, not just the number itself.
What this means if you bought with an ARM
Adjustable rate mortgages have made a real comeback over the past year, largely on the bet that rates would come down enough to refinance out before the first adjustment. ARM applications were up over 100% year over year nationally by the start of 2026.
The rate cap on your loan, and exactly when your fixed period ends, are worth knowing now rather than finding out at the reset. Anyone who took a low, pandemic-era ARM back in 2020 or 2021 and is approaching their first adjustment has the most at stake, since their rate could reset from something like 3% up to whatever today's index puts them at.
The bottom line for Phoenix
Last time rates hit 7%, the affordable end of the Valley gave up leverage first, and it didn't stay that way for long. If you're buying in that range right now, that's the window worth paying attention to.
The luxury market told the opposite story, and that's probably the more relevant one right now given how much of today's activity is happening above $1 million. Buyers up there didn't slow down for a rate headline last time, and there's no real sign that's about to change this time either. Waiting for a rate spike to thin out competition on a $1 million-plus home hasn't worked before.
If you're in an ARM, this is the moment to run the numbers instead of hoping rates bail you out before your reset.
Did you buy in the last year or two with an ARM, or negotiate a rate buydown instead of a price cut last time rates spiked? Curious how many people actually used that playbook. Drop it in the comments.
