(Bloomberg) — U.S. mortgage rates climbed near 7%, threatening to squeeze buyers trying to crack the housing market.
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The average rate on a 30-year mortgage rose to 6.91% as of Jan. 2, from 6.85% a week earlier, according to Freddie Mac data released Thursday. A measure by the Mortgage Bankers Association rose 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 weighed on demand recently, with the MBA index of home-buying applications sliding nearly 7% to its lowest level since mid-November. Although the figures are adjusted for seasonal effects, they are still prone to wide swings around year-end holidays.
“It’s not exactly a great way to start the new year,” said Odetta Kushi, deputy chief economist, First American Financial Corp. “Industry experts are coming to a consensus that 2025 is another long year for the housing market. This is not a big news.”
Mortgage rates tend to track Treasury yields, which continued to climb in late December when Federal Reserve policymakers projected a slower pace of interest rate cuts in 2025 amid sticky inflation.
“Compared to this time last year, rates are higher and market affordability remains intact,” Freddie Mac chief economist Sam Khatter said in a statement Thursday.
If mortgage rates remain stable, even at high levels, that could help jump-start a housing recovery, Kushi said. And if the Fed continues to cut its benchmark interest rates, that could help ease mortgage rates from current levels, he said.
Despite the end-of-year increase in mortgage rates, separate data from the National Association of Realtors showed that potential homebuyers are getting used to the higher-rate environment.
In November, when rates averaged 6.8%, a measure of contract signings for the purchase of previously owned homes reached 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 retail residential mortgage applications in the US.
(Updated with Freddie Mac data starting in the first paragraph.)
