(Bloomberg) — U.S. mortgage rates rose nearly 7%, threatening to put pressure on buyers trying to enter the housing market.
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The average for a 30-year mortgage rose to 6.91% on Jan. 2, up from 6.85% the week before, according to Freddie Mac data released Thursday. A measure by the Mortgage Bankers Association advanced 8 basis points to 6.97% in the period ended Dec. 27, a nearly six-month high.
High borrowing costs are weighing on affordability. They have also put pressure on demand recently, with the MBA Home Application Index falling nearly 7% to the lowest level since mid-November. While the numbers are adjusted for seasonal effects, they are still prone to large swings around the end-of-year holidays.
“It’s not exactly a good way to start the new year,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “Industry experts are reaching a consensus that 2025 will be another year of upside and more time for the real estate market. “It’s not great news.”
Mortgage rates tend to follow Treasury yields, which continued to rise in late December after Federal Reserve policymakers projected a slower pace of interest rate cuts in 2025 amid persistent inflation.
“Compared to this time last year, rates are elevated and market affordability headwinds remain,” Sam Khater, Freddie Mac’s chief economist, said in a statement Thursday.
If mortgage rates stabilize, even at a high level, that could help fuel a housing recovery, Kushi said. And if the Federal Reserve continues to cut its benchmark interest rate, that could help mortgage rates come down from current levels, he said.
Despite rising mortgage rates at the end of the year, separate data from the National Association of Realtors showed that prospective homebuyers are becoming more accustomed to a higher rate environment.
In November, when rates averaged around 6.8%, an indicator of contract signings for the purchase of used homes advanced to the highest level since February 2023. Demand has been helped by an increase in inventory.
The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data covers more than 75% of all US retail residential mortgage applications.
(Updated with data from Freddie Mac starting in the first paragraph).