Can the housing market weather another rate increase?
Mortgage rates in the United States rose for the fourth straight week, nearing the 7% threshold and raising concerns about housing market affordability and stability. The average rate for a 30-year fixed mortgage reached 6.93%, a slight increase from 6.91% the previous week, according to Freddie Mac’s report on Thursday.
A Bloomberg report highlighted that the rising rates are straining the purchasing power of potential homebuyers, particularly as housing prices remain high. Applications for home-purchase loans dropped sharply in late December, signaling that a slowdown in housing transactions may persist into 2025, per an analysis of Mortgage Bankers Association data by Capital Economics.
The uptick in rates aligns with higher yields for 10-year Treasury bonds, reflecting market speculation over persistent inflation and economic policies under incoming president Donald Trump. Although the Federal Reserve reduced its benchmark rate three times in 2024, future monetary easing is expected to proceed at a slower pace, with only two rate cuts projected for 2025, likely beginning in the year’s second half.
“The continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability,” Sam Khater, Freddie Mac’s chief economist, said in the statement. He also noted that the lack of entry-level housing inventory is compounding the challenges for first-time buyers.
While overall housing inventory is growing, new listings remain below pre-pandemic levels in many areas, according to Redfin Corp. A recent survey by the brokerage revealed that over a third of US homeowners do not plan to sell their properties, with an additional 27% indicating they are unlikely to sell for at least a decade. Many cited the financial advantage of holding on to paid-off or low-interest-rate mortgages, as well as concerns about the high costs of purchasing a new home.
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