In a concerning development for potential homebuyers, mortgage rates have once more approached the 7% threshold. The most recent data from Freddie Mac indicates that the average for a 30-year fixed-rate mortgage stood at 6.91% in the final week of 2024. This marks the highest rate observed in almost half a year, reflecting an upward trend from the preceding week’s average of 6.85% and representing a notable increase from last year’s 6.62%.
The rise in mortgage rates flies in the face of the Federal Reserve’s recent decision to cut interest rates by a quarter-point, marking its third reduction this year. Despite this, the Fed has scaled back its outlook on the frequency of future rate cuts, a move influenced by persistent inflation and a robust labor market. Although the actions of the Federal Reserve play a significant role in shaping mortgage rates, these rates are more precisely aligned with the direction of the 10-year US Treasury yields. Notably, these yields have been rising in recent months, driven partly by the Fed’s revised stance and concerns over the expanding national debt under a second Trump administration.
Compared to a year ago, the mortgage rate elevation presents continued challenges for market affordability, as highlighted by Sam Khater, Freddie Mac’s chief economist. This environment has deterred many potential buyers, contributing to a 21.9% drop in mortgage applications for the week ending December 27, compared to the previous fortnight, according to the Mortgage Bankers Association. Nevertheless, Mike Fratantoni, the MBA’s chief economist, points out that such a decline is typical during the holiday period, when market activity tends to decelerate, impacting both refinancing and purchase applications.
Prospective homeowners entered 2024 with optimism, banking on the expectation that Fed rate cuts would drive down mortgage rates and stimulate new housing inventory. This was particularly anticipated as many homeowners remain reluctant to surrender the low mortgage rates secured during the pandemic. However, an unexpected inflation surge in early 2024 delayed the Fed’s intervention, with the first significant rate reduction occurring only in September. Though this initially led to a drop in mortgage rates, the resilient labor market suggested no imminent slowdown, causing rates to rise again.
The consequence has been a housing market largely unchanged from a year prior. The National Association of Realtors reported that the median existing-home sales price in November was $406,100, marking the 17th consecutive month of annual price increases. This stands in stark contrast to the pre-pandemic median price of $274,000 recorded in November 2019. This increase in median prices is indicative of a market predominantly driven by wealthier and older Americans, given the limited affordable housing options available to other demographics.
The upward trajectory of mortgage rates approaching the 7% mark underscores significant affordability issues within the housing market. Despite hopes tied to Federal Reserve actions, the anticipated ease in mortgage rates has not materialized as expected. Instead, the market remains challenging, with elevated price barriers limiting entry for many potential homebuyers.
Source: Abcactionnews
