lucadelladora – Mortgage rates are rising again, adding more pressure to homebuyers as 2024 comes to a close. The 30-year fixed-rate mortgage averaged 6.91% in the final week of the year, according to Freddie Mac, just shy of the 7% mark. This marks the highest level in nearly six months and a noticeable increase from 6.85% the previous week. By comparison, mortgage rates averaged 6.62% during the same period last year.
The recent increase in mortgage rates persists despite the Federal Reserve implementing its third quarter-point interest rate cut of the year last month. However, the central bank tempered expectations for additional cuts in 2025. Citing inflation above its 2% target and a robust labor market.
Mortgage rates are influenced by the Fed’s actions but are more closely tied to the performance of 10-year U.S. Treasury yields. Over the past month, Treasury yields have risen steadily due to the Fed’s revised outlook and concerns over the government’s growing debt burden. The possibility of further debt expansion under a second Trump administration has fueled additional market anxiety.
Higher mortgage rates create challenges for homebuyers, as elevated borrowing costs limit affordability in an already constrained housing market. Experts warn that continued upward pressure on Treasury yields could drive mortgage rates even higher in 2025, adding to economic uncertainty for prospective buyers.
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Rising Rates and Treasury Yields Keep Housing Market in a Seasonal Slowdown
Mortgage rates remain closely tied to the performance of 10-year U.S. Treasury yields, which have risen steadily over the past month. These yields, a key indicator for mortgage rates, have been impacted by the Federal Reserve’s revised economic outlook and concerns over the government’s widening debt burden. Many analysts fear this debt could grow further under a second Trump administration, adding more upward pressure to yields.
Freddie Mac’s chief economist, Sam Khater, highlighted the ongoing challenges in the housing market. “Compared to this time last year, [mortgage] rates are elevated, and the market’s affordability headwinds persist,” Khater said in a statement Thursday.
Higher mortgage rates continue to deter many potential homebuyers. Mortgage applications fell 21.9% for the week ending December 27 compared to two weeks earlier. According to data from the Mortgage Bankers Association (MBA). However, MBA’s chief economist, Mike Fratantoni, attributed much of the decline to seasonal factors.
“Around the holiday season, housing activity typically grinds to a halt,” Fratantoni explained. This slowdown often results in sharp declines in both refinancing and purchase applications, making the current drop less concerning in a broader context.
As 2024 ends, the combination of elevated mortgage rates, rising Treasury yields, and affordability challenges continues to weigh on the housing market. Analysts predict these factors will persist into 2025, potentially keeping many buyers on the sidelines.
Hopes for Lower Mortgage Rates Fade as Housing Market Stagnates in 2024
Prospective homebuyers entered 2024 with optimism, anticipating Federal Reserve rate cuts would lower mortgage rates and increase housing inventory. Many homeowners who locked in low mortgage rates during the pandemic remained hesitant to sell, keeping inventory tight.
However, the Fed’s rate-cutting cycle began later than expected. Delayed by an unexpected inflation spike in the first quarter of 2024. Inflation eventually cooled, but the central bank held off on cutting rates until September, when it made an unusually large half-point reduction. While mortgage rates briefly dropped in anticipation of the cut, they began climbing again as the labor market remained resilient, reducing urgency for further Fed action.
The result was a housing market that saw little change from the previous year. Much of the homebuying activity came from older, wealthier Americans who could afford higher prices, leaving younger and less affluent buyers struggling with affordability. The National Association of Realtors (NAR) reported a median existing-home sales price of $406,100 in November, marking the 17th consecutive month of year-over-year price increases. For comparison, the median sales price in November 2019, before the pandemic, was $274,000.
The persistent affordability challenges have limited access to homeownership for many demographic groups, with rising rates and stagnant inventory creating barriers for first-time buyers. The housing market remains a stark contrast to the pre-pandemic era, with elevated prices and limited options defining the landscape.
As 2025 approaches, market conditions suggest continued challenges, with affordability and inventory expected to remain significant hurdles. Prospective buyers are advised to monitor economic indicators and consider strategies for navigating a high-cost, low-inventory market. The evolving housing market underscores the long-term impacts of pandemic-era policies and the enduring effects of inflationary pressures on affordability.
