US mortgage rates are nearing the 7% mark, which could put a strain on potential homebuyers. As of January 2nd, the average 30-year mortgage rate rose to 6.91%, up from 6.85% the prior week, according to Freddie Mac. The Mortgage Bankers Association also reported an increase to 6.97% by December 27th. These higher borrowing costs are reducing affordability and have recently lowered demand, with home-purchase applications falling nearly 7% to their lowest level since mid-November. Despite seasonal adjustments, these figures still fluctuate significantly around the holidays.
Odeta Kushi, deputy chief economist at First American Financial Corp., noted that the consensus for 2025 is another year of high rates for the housing market, which is not very optimistic. Mortgage rates usually follow Treasury yields, which have been climbing due to the Federal Reserve forecasting a slower pace of interest-rate reductions owing to persistent inflation.
Sam Khater, Freddie Mac’s chief economist, pointed out that current rates are higher than this time last year, continuing to pose affordability challenges. Even if mortgage rates stabilize at higher levels, it might help spur a housing recovery. A decrease in the Fed’s benchmark interest rate could also help reduce mortgage rates.
In spite of rising rates, the National Association of Realtors noted that in November, with rates averaged at 6.8%, contract signings for previously owned homes increased to their highest level since February 2023. This demand has been driven by an increase in available inventory.