US mortgage rates approach 7%, worrying sign for real estate market

(Bloomberg) — U.S. mortgage rates have edged closer to 7%, threatening to constrain buyers trying to enter the housing market.

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The average 30-year mortgage rose to 6.91% on Jan. 2, from 6.85% a week earlier, according to Freddie Mac data released Thursday. A measure by the Mortgage Bankers Association rose 8 basis points to 6.97% in the period ended Dec. 27, a nearly six-month high.

High borrowing costs weigh on affordability. They have also put pressure on demand recently, with the MBA homebuying applications index sliding nearly 7% to its lowest level since mid-November. Even if the figures are corrected for seasonal effects, they remain subject to strong variations around the end of year holidays.

It's not really a good way to start the new year, said Odeta Kushi, deputy chief economist at First American Financial Corp. Industry experts agree that 2025 will be another higher and longer year for the real estate market. This is not good news.

Mortgage rates tend to track Treasury yields, which continued to rise in late December after Federal Reserve policymakers forecast a slower pace of interest rate cuts in 2025 amid persistent inflation.

Compared to the same period last year, rates are elevated and market headwinds persist, Sam Khater, Freddie Mac's chief economist, said in a statement Thursday.

If mortgage rates stabilize, even at a high level, that could help jumpstart the housing recovery, Kushi said. And if the Fed continues to cut its benchmark interest rate, that could help mortgage rates fall from their current levels, she said.

Despite the year-end rise in mortgage rates, separate data from the National Association of Realtors showed that potential buyers are becoming increasingly accustomed to a higher-rate environment.

In November, when rates averaged around 6.8%, the indicator of contract signings for the purchase of second-hand homes reached its highest level since February 2023. Demand was supported by a slight increase in stocks.

The MBA survey, conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and savings banks. The data covers more than 75% of all retail residential mortgage applications in the United States.

(Updated with Freddie Mac data from first paragraph.)

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