The average rate on 30-year fixed-rate mortgages surpassed 7 percent for the first time since May, Freddie Mac reported on Thursday, extending a weekslong climb that could push more buyers and sellers to the sidelines.
The rate on the 30-year mortgage, the most popular home loan in the United States, jumped to 7.04 percent this week, up from 6.93 percent the previous week. Mortgage rates tend to track the yield on 10-year Treasury bonds, which has risen in recent months in response to a string of strong economic data, persistent inflation and a potential rise in debt and deficits stemming from policies of the incoming Trump administration.
“The underlying strength of the economy is contributing to this increase in rates,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
There was a moment in late September when mortgage rates, after declining for months, appeared poised to drop below the symbolic 6 percent threshold, a boon to would-be buyers. But that window has closed, at least for now.
Inflation has recently proved stubborn. In December, the Consumer Price Index rose 2.9 percent from a year earlier, the Labor Department said on Wednesday, indicating that the Federal Reserve has not yet won its battle against rapid price increases. Last year, the Fed began cutting interest rates from the highest levels since the 2008 global financial crisis, lowering them three times. The central bank signaled only two reductions this year and some forecasters think that policymakers may not lower rates at all in 2025.
Mortgage rates have been climbing even as the Fed has cut its target rate. That divergence is largely because longer-term rates, including those for mortgages and auto loans, are set by the market and reflect investors’ expectations of future economic conditions. Although the yield on the 10-year Treasury bond has fallen in the past few days on some encouraging signs in the latest inflation report, it remains far 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 average 30-year rate hovered around 3 percent for stretches of 2020 and 2021. The rise has made many potential sellers reluctant to put their homes on the market, unwilling to part with lower rates on their existing mortgages.
But homeowners might eventually adjust to current rates, said Lu Liu, an assistant professor of finance at the Wharton School at the University of Pennsylvania. “Maybe in the next year or two, people will get used to them and be willing to sell,” she said.