Making sense of market moves
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Home is where the heart is. Unfortunately for new homebuyers, it’s also where you’ll spend the next 30 years paying off a historically high mortgage rate.
The 52-week average rate for a 30-year mortgage is 6.74%, and sat at 6.77% this time last year. But rates have steadily risen over the last few weeks and broke above 7% this week, putting the dream of homeownership further out of reach for many Americans.
The hope was that the Federal Reserve’s decision to begin cutting interest rates late last year would drag down mortgage rates as well. Instead, we’ve seen five straight weeks of rising mortgage rates culminating in a 7.04% rate, the highest level since last May. So, what went wrong?
It’s the economy, stupid
A strong US economy with slowing inflation and low unemployment does have one downside: Traders are optimistic that economic growth will continue, so they’re selling bonds and pushing yields higher. Expectations that the Fed won’t cut interest rates until this summer have only sent bond yields skyward over the last few weeks, dragging mortgage rates higher as well.
“The underlying strength of the economy is contributing to this increase in rates,” Freddie Mac Chief Economist Sam Khater explained in a recent report.
That’s not the only thing going wrong in real estate these days:
- “The median U.S. sale price currently sits at $428,000,” real estate site Redfin wrote last week. “House prices have posted year-over-year gains for 18 consecutive months and are over 45% higher than they were in 2020.”
- Homebuyers are noticing: demand for mortgages just hit its lowest level in over 30 years, according to real estate app Reventure.
- 84% of all homeowners still have a mortgage rate under 6%, according to Realtor.com, which means there’s not much incentive for current homeowners to sell and take on a higher mortgage rate.
Unfortunately, there doesn’t seem to be much relief in sight: Redfin expects the 30-year mortgage rate to hang around an average 6.8% through 2025, while Realtor.com thinks it could fall to an average of 6.2% this year.
One bit of good news: US housing starts, a measure of new single-family home construction, rose to a 10-month high in December, and total housing inventory rose 17.7% in 2024. Low supply is a key chokepoint for the housing market, and any alleviation could help to turn the tide for buyers locked out of the home of their dreams.—MR