Freddie Mac reported Thursday that average interest rates on 30-year fixed-rate mortgages have topped 7% for the first time since May, extending a weeklong rally that could sideline more buyers and sellers. .
Interest rates on 30-year mortgages, the most popular mortgage in the United States, rose to 7.04% this week from 6.93% the previous week. Mortgage rates tend to be tied to the yield on the 10-year U.S. Treasury, and yields are expected to rise following a series of strong economic indicators, continued inflation, and potential increases in debt and deficits due to the policies of the incoming Trump administration. has been rising in recent months.
“The underlying strength of the economy is contributing to this rise in interest rates,” Sam Cater, chief economist at Freddie Mac, said in a statement.
In late September, after months of falling mortgage rates, there was a moment when they appeared to be on the verge of falling below the symbolic 6% benchmark, a boon for potential buyers. But that window is closed, at least for now.
Inflation has proven stubborn lately. The Consumer Price Index rose 2.9% in December from a year earlier, the Labor Department said Wednesday, showing that the Federal Reserve has not yet won the battle against rapid price increases. The Fed began lowering interest rates last year from their highest levels since the 2008 global financial crisis, cutting them three times. The central bank has signaled just two rate cuts this year, and some forecasters believe policymakers may not cut rates at all in 2025.
Mortgage rates are rising even though the Federal Reserve has lowered its target interest rate. The main reason for this discrepancy is that long-term interest rates, including those on mortgages and auto loans, are set by the market and reflect investors' expectations about future economic conditions. There are some bright spots in the latest inflation report, with the yield on the 10-year Treasury note falling in recent days but still much higher than it was just a few months ago.
And mortgage rates are more than twice as high as they were during the early stages of the coronavirus pandemic, when the 30-year average rate hovered around 3% in 2020-2021. This increase has made many potential sellers reluctant to take out a mortgage. People who put their homes on the market don't want interest rates on their existing mortgages to go down.
But Lu Liu, an assistant professor of finance at the Wharton School at the University of Pennsylvania, said homeowners may eventually adjust to current interest rates. “Maybe in the next year or two people will get used to them and be willing to sell them,” she said.
