Mortgage Rates Reach Highest Level in More Than Five Months

December 27, 2024 TruthUSA

A real estate specialist indicated that rates are predicted to stay above 6 percent in the coming year.

After a decrease earlier this month, mortgage rates have surged again following the Federal Reserve’s shift towards a more cautious approach regarding interest rate reductions next year.

According to Freddie Mac, the average weekly rate for a 30-year fixed-rate mortgage reached 6.85 percent for the week ending December 25, marking the highest level since July 10. The rate reversed from a low of 6.6 percent for the week ending December 11 and has been steadily increasing since then.

This recent increase occurred after the Federal Reserve indicated last week that it would slow the pace of rate cuts in 2025. Consequently, the anticipated slower reductions next year could lead to interest rates remaining elevated for a longer time, further driving up mortgage rates.

Ten-year treasury yields, which also affect mortgage rates, have increased following the Fed’s announcement.

The rise in mortgage rates over the past week marks the second consecutive increase, as noted by Sam Khater, Freddie Mac’s chief economist who reported.

Over the last year, mortgage rates have generally remained in the 6 percent to 7 percent range. Despite these elevated rates, potential homebuyers are “slowly coming to terms with the higher rates and are gradually more inclined to proceed with home purchases,” stated Khater.

Fannie Mae forecasts that mortgage rates will remain elevated next year, along with periods of volatility.

“Increased volatility in mortgage rates might provide potential homebuyers with chances to seize temporary lows, leading to periods of heightened housing activity due to lower rates,” remarked Mark Palim, senior vice president of Fannie Mae.

Nevertheless, “on average, we anticipate that mortgage rates will stay high and hinder activity,” he added, indicating that rates are expected to exceed 6 percent in 2025.

Demand for Home Buying and Affordability

Despite elevated mortgage rates, there has been a surge in interest in home buying, as revealed by a recent report conducted by Redfin, a real estate brokerage.

According to Redfin’s Homebuyer Demand Index, interest has increased by 9 percent compared to last year, reaching the highest level since August 2023. The brokerage suggested that mortgage rates might have “reached their low point.”

David Palmer, a Premier agent from Redfin, noted that the increased demand stems from buyers accepting that rates in the 6 percent to 7 percent range are now the norm. They understand that waiting to buy will likely result in unchanged mortgage rates, while home prices will likely rise.

The National Association of Home Builders (NAHB) reported that higher mortgage rates have slowed housing production in October.

NAHB Chief Economist Robert Dietz anticipates that Federal Reserve rate cuts next year will lead to lower interest rates for construction and development loans, which should contribute to stabilizing apartment construction and expanding single-family home building.

Over the past few years, housing affordability has deteriorated due to high mortgage rates, as reported by NAR data.

In 2021, a buyer needed to allocate nearly 17 percent of their income to purchase a median-priced existing single-family home. By October this year, that percentage rose to over 24 percent. The monthly mortgage cost escalated from $1,206 to $2,086.

In addition to mortgage rates, the surge in home prices has exacerbated the affordability crisis for buyers. According to an NAR report, nearly 90 percent of 226 monitored metropolitan areas reported price increases in the third quarter.

NAR chief economist Lawrence Yun stated, “Despite the steep price hikes seen in recent years, the chance of a market crash is minimal. The rate of distressed property sales and the number of homeowners defaulting on their mortgage payments are both at historic lows.”

“While housing affordability remains a challenge, the worst seems to be behind us,” he noted. “Rising wages are outpacing increases in home prices. Although we may see some short-term fluctuations, mortgage rates are projected to stabilize below last year’s levels, and more inventory is becoming available, offering consumers more choices.”

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