Mortgage rates move closer to 7% to close 2024

Mortgage rates are rising again, another unwelcome sign for homebuyers.

The standard 30-year fixed-rate mortgage averaged just under 7% in the final week of 2024 ending Jan. 2, according to data from mortgage finance giant Freddie Mac. This is the highest level in almost six months and also up from the previous week, when mortgage rates averaged 6.85%, up from 6.91% on average last week. A year ago, mortgage rates averaged 6.62%.

The latest rise in mortgage rates comes despite the Federal Reserve cuts interest rates by a quarter point last month, his third cut of the year. However, the central bank lowered its forecast for the number of rate cuts it expects this year, with inflation remaining above its 2% target and the labor market on solid footing.

Although mortgage rates are directly influenced by central bank actions, they are more closely aligned with the direction of 10-year U.S. Treasury yields, which are a proxy for mortgage rates. Over the past month, the 10-year Treasury yield has risen steadily, in part due to the Fed’s revised outlook as well as the government’s growing debt burden, which many fear will continue to grow under a second Trump administration.

“Compared to this time last year, (mortgage) rates are high and market affordability issues persist,” Sam Khater, Freddie Mac’s chief economist, said in a statement Thursday.

Rising mortgage rates are keeping many potential buyers away. Mortgage loan applications fell 21.9% for the week ending Dec. 27 compared to two weeks earlier, according to data released Thursday by the Mortgage Bankers Association.

But that’s not so uncommon this time of year, said Mike Fratantoni, MBA’s chief economist. During the holiday season, real estate activity “typically grinds to a halt,” he said in a statement Thursday. This tends to lead to “lower refinancing and purchase applications.”

A painful year for future buyers

Many potential buyers entered 2024 hoping that expected rate cuts from the Fed would lower mortgage rates and, therefore, unlock new housing inventory from homeowners who I didn’t want to give up the lowest mortgage rates they obtained during the pandemic.

However, the Fed’s rate cut cycle started later than central bankers themselves had initially anticipated due to a surprise rise in inflation in the first quarter of 2024. But even if inflation s s calmed down, the Fed delayed its rate cut until September, when it lowered rates. by half a point, an unusually large move.

Mortgage rates initially fell in anticipation of the Fed cutting rates, but as it became more apparent that the labor market was not imminently threatened by a dramatic and more painful slowdown that would prompt the Fed to act with more urgency to reduce rates, mortgage rates began to rise again.

The end product: a real estate market virtually unchanged from a year ago.

Much of last year’s home buying activity came from Americans who were older and richer than ever due to the lack of affordable options for other demographic groups. The median sales price for existing homes was $406,100 in November, the 17th straight month of year-over-year price increases, according to the National Association of Realtors. In November 2019, before the pandemic, the median sales price was $274,000, according to NAR.

CNN’s Samantha Delouya contributed reporting.

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