US Mortgage Interest Rates Surpass 7 Percent

A "For Sale" sign in front of a home in Arlington, Va., on Aug. 22, 2023. Andrew Caballero-Reynolds/AFP via Getty Images

Mortgage rates have surpassed the 7 percent mark owing to a rise in economic factors.

The 30-year fixed-rate mortgage, for the week ending Jan. 15 was 7.04 percent, according to data from Loan Mortgage Corporation Freddie Mac.

The rate has been on a steady upward trend since September 2024, with a slight dip in December. “The underlying strength of the economy is contributing to this increase in rates,” said the corporation.

The latest Bureau of Labor Statistics data show that employment grew by 256,000 in December with gains recorded in health care, government, and retail. Meanwhile, the number of permanent job losses declined by 164,000, and the average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents to $35.69.

The annual inflation rate has also gone up, rising to 2.9 percent last month from November’s 2.7 percent, with food, cars, and airline tickets registering price increases. Moreover, American consumers expect inflation to stay elevated despite the incoming Trump administration, according to the January University of Michigan Consumer Sentiment Index.

Rising prices have, in turn, dampened U.S. consumer confidence.

“January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month, but surging worries over the future path of inflation,” Joanne Hsu, director of the survey, said in a statement. She said the decline in expectations was noted across all political affiliations.

Higher prices and increased rates combined with adverse weather conditions have led to potential home buyers taking a step back resulting in negative trends across the U.S. housing market.

Unsold Homes, Treasury Yields

As wildfires burn in California, extreme cold conditions persist in the Northeast, Midwest, and South of the country.

Real estate brokerage Redfin’s Homebuyer Demand Index shows an 11 percent decline month over month in its January report.

“Pending home sales fell 8.4 percent year over year during the four weeks ending January 12, the biggest decline since October 2023,”according to the Jan. 16 report.

“Prospective sellers are also sitting on the sidelines, with new listings posting their biggest annual decline since September 2023.”

A home sale is counted as pending when a buyer accepts an offer but hasn’t yet signed a contract.

High housing costs, which are up 5.8 percent annually, are disincentivizing would-be buyers with median housing payments recording the highest level in over two years, said the brokerage.

The California wildfires have disrupted the housing market in the region with home buying demand and listings in the Los Angeles metro going down while there is an increase in rental demand as people are displaced.

“There’s a feeling of overwhelming sadness and stress about the destruction we’re seeing in so many neighborhoods,” said Susan Brown, a Redfin agent in the Los Angeles area. “Part of that is because so many people now have to find new homes, and we’re seeing a chaotic ripple effect in the market. I’ve personally had three people who lost their homes reach out to me to start searching, and we all have an influx of clients looking for rental properties.”

The increase in inflation will influence Federal Reserve rate cuts this year. Some analysts do not predict a rate cut before mid-2025, which will have an impact on the mortgage rates.

Mortgage rates are tied to treasury bonds, particularly the yields on 10-year bonds. As market uncertainty goes up, people buy bonds, which in turn, drives yields down. This is often reflected in the mortgage market as rates come down.

The 10-year treasury note yields have gone up over 10 percent over the last three months. However, over the past five days, it has come down by nearly 3.4 percent, suggesting a moderation in the yields.