(Bloomberg) — U.S. mortgage rates rose closer to 7%, putting 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% a week earlier, according to Freddie Mac data released Thursday. A measure from the Mortgage Bankers Association rose 8 basis points to 6.97% in the period ended Dec. 27, a nearly six-month high.
The high borrowing costs weigh on affordability. They have also put pressure on demand recently, with the MBA index of home purchase applications falling almost 7% to its lowest level since mid-November. Although the figures have been adjusted for seasonality, they are still sensitive to large fluctuations 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 coming to the consensus that 2025 will be another higher and longer year for the housing market. It’s not great news.”
Mortgage rates generally track Treasury yields, which continued to rise in late December after Federal Reserve policymakers forecast a slower pace of rate cuts through 2025 amid persistent inflation.
“Compared to this time last year, interest rates have increased and affordability in the market continues,” Sam Khater, Freddie Mac’s chief economist, said in a statement Thursday.
If mortgage rates stabilize, even at high levels, that could spur a recovery in the housing market, Kushi said. And if the Fed continues to cut its benchmark interest rate, that could help mortgage rates fall from current levels, she said.
Despite the year-end rise in mortgage rates, separate data from the National Association of Realtors showed potential homebuyers are becoming increasingly accustomed to a higher interest rate environment.
In November, when interest rates averaged around 6.8%, the number of contract signatures for the purchase of previously owned homes reached the highest level since February 2023. Demand was helped by a rise in inventories.
The MBA survey, conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrift stores. The data covers more than 75% of all applications for private residential mortgages in the US.
(Updates with Freddie Mac data begin in the first paragraph.)