Mortgage Rates Hit Highest Level in Over 5 Months

A sale sign stands outside a home on the market along Nevada Avenue in the Old North End neighborhood of Colorado Springs, Colo., on June 22, 2023. David Zalubowski/AP Photo

Mortgage rates have shot back up after declining earlier this month following the Federal Reserve’s change to a slower, more cautious approach to interest rate cuts next year.

The average weekly rate on a 30-year fixed-rate mortgage was 6.85 percent for the week ending Dec. 25, the highest it’s been since the week ending July 10, according to data from Freddie Mac. After hitting a low of 6.6 percent for the week ending Dec. 11, the mortgage rate reversed course and has since been on an uptick.

The recent jump came after the Federal Reserve suggested last week that the pace of rate reductions would slow down in 2025. The slower pace of cuts next year could result in interest rates remaining at an elevated level for longer than expected, contributing to higher mortgage rates.

Ten-year-treasury yields, another influencing factor in the trajectory of mortgage rates, also increased after the Fed announcement.

The rise in mortgage rates for the most recent week was the second consecutive time that the rates increased, said Sam Khater, Freddie Mac’s chief economist.

Mortgage rates have largely stayed within a range of 6 percent to 7 percent over the past 12 months, according to Khater. Even though elevated, prospective homebuyers are “slowly digesting these higher rates and are gradually willing to move forward with buying a home.”

Fannie Mae expects mortgage rates to remain elevated next year along with “bouts of volatility.”

“Heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates,” said Mark Palim, senior vice president of Fannie Mae.

However, “on average, we expect mortgage rates to remain elevated and a hindrance to activity,” he said, adding that rates are set to be above 6 percent in 2025.

Buying Demand and Affordability

Despite mortgage rates being high, there has been an increase in interest in buying homes, according to a recent report by real estate brokerage Redfin.

Redfin’s Homebuyer Demand Index is up by 9 percent from a year back, hitting its highest level since August 2023. The brokerage suggested that mortgage rates could have “bottomed out.”

David Palmer, a Redfin Premier agent, attributed the higher demand to buyers having “accepted that rates in the six percent to seven percent range are the new normal, and they know that if they wait to buy, mortgage rates will probably stay the same but prices will be higher.”

According to the National Association of Home Builders (NAHB), higher mortgage rates slowed housing production in October.

NAHB Chief Economist Robert Dietz expects Fed rate cuts next year to “result in lower interest rates for construction and development loans, helping to lead to a stabilization for apartment construction and expansion for single-family home building.”

Amid high mortgage rates, housing affordability has worsened over the past years, according to data from the National Association of Realtors (NAR).

In 2021, a buyer had to pay nearly 17 percent of their income to afford a median-priced existing single-family home. This jumped to more than 24 percent in October this year. The monthly mortgage payment increased from $1,206 to $2,086.

In addition to mortgage rates, high home prices are also contributing to the affordability crisis facing buyers. In the third quarter, roughly 90 percent of 226 tracked metros registered price gains, according to an NAR report.

“Even with the rapid price appreciation over the last few years, the likelihood of a market crash is minimal. Distressed property sales and the number of people defaulting on mortgage payments are both at historic lows,” said NAR chief economist Lawrence Yun.

“Housing affordability has been a challenge, but the worst appears to be over,” he said. “Rising wages are outpacing home price increases. Despite some short-term swings, mortgage rates are set to stabilize below last year’s levels. More inventory is reaching the market and providing additional options for consumers.”