- All signs’ point to more expensive costs, economist says
- MBA measure of 30-year mortgage rate in US hit 7.09%
US homebuyers contending with the highest borrowing costs in eight months are seeing mortgage rates rise past a psychological barrier that risks complicating purchase decisions even more.
Rates for 30-year loans have crossed 7%, a key level that may keep the housing market in the doldrums for some time to come. And with US economic strength signaling that policymakers may move carefully with any interest-rate cuts, it’s unclear whether buyers will get substantial help soon.
“The hope in 2025 was that we were going to see affordability relief,” said Ali Wolf, the chief economist at Zonda, a homebuilding analytics firm. “But all signs point to costs getting more expensive. Home values are still rising, rates are going up, and so are insurance costs and property taxes.”
That outlook marks a major shift from September, when the Federal Reserve started cutting and mortgage rates fell to a two-year low, boosting optimism for a housing recovery. Persistently high rates, coupled with prices that have stayed elevated, threaten now to squeeze affordability even more and keep sales at a sluggish pace.
The contract rate on a 30-year mortgage hit 7.09% in the week ended Jan. 10, according to data released Wednesday by the Mortgage Bankers Association. On Mortgage News Daily, which updates more frequently, the average was even higher at 7.13%.
In many ways, the US economy is chugging along. A robust jobs report last week led traders to dial back expectations about the Fed’s pace of rate cuts. And while a measure of consumer prices rose less than expected in December, policymakers would likely need to see more signs of softer inflation before cutting again.
For homebuyers, that raises the risk that mortgage rates stay high for longer.
“The conquering of inflation will be a key factor in bringing down the mortgage rates, which so far have refused to budge even as the Federal Reserve has been cutting other interest rates,” Lawrence Yun, chief economist for the National Association of Realtors, said in a statement.
High costs and a long-running shortage of affordable listings are restricting who can afford to enter the housing market. First-time homebuyers are facing one of the toughest times in years. They made up just 24% of the buyers in the year through June 2024, the lowest share on record, according to the NAR.
“Affordability is still a top concern,” said Mark Palim, the chief economist at Fannie Mae. “Rates are a dampener on transactions so we have to see what happens in the next few months.”
Consumer Psyche
While 7% is the highest since May, it’s at least lower than in October 2023, when rates were inching higher toward 8%. And there are signs that some consumers are starting to accept high rates, according to NAR’s Yun.
It’s particularly showing up with sellers. More owners have listed properties even if it means having to move and risk giving up their own, often lower, mortgage rates. In the four weeks ended Jan. 5, active listings were up nearly 11% from a year earlier, according to Redfin Corp. data.
“The job market is good, the stock market is high, mortgage rates may not be a bigger factor than before. Inventory appears to be the bigger story,” Yun said in an interview. “Even as interest rates were rising, inventory grew, resulting in more sales this fall.”
What could be most key for the housing market is interest-rate stability. As buyers finally get more home options to choose from and adjust their budgets and expectations, Wolf said more certainty around borrowing costs is likely to help reenergize the market.
“The consumer psyche around interest rates is a moving target,” she said. “What consumers do want to know is that if they start looking for a home, they will still be able to afford it when they’re ready to purchase.”
Written by: Paulina Cachero — With assistance from Vince Golle @Bloomberg
The post “US Mortgage Rates Pushing Past 7% Signal Tough Road Ahead” first appeared on Bloomberg