Washington
CNN
–
Mortgage rates hit 7% this week, a key psychological threshold, in a sign of the US housing market’s continued affordability challenges.
The average rate for a standard 30-year fixed mortgage was 7.04% in the week ending Jan. 16, according to a survey of lenders released Thursday by Freddie Mac. It is the fifth consecutive weekly increase and the highest level since May.
Mortgage rates this week were almost a percentage point higher than in late September, when the Federal Reserve began cutting interest rates. The yield on the 10-year U.S. Treasury note, which influences mortgage rates, rose more in the past few weeks on signs of stubborn inflation, but fell on Wednesday after the latest Consumer Price Index showed that progress is back on track.
The Fed has signaled just two rate cuts this year, which could come by the end of the year, according to Wall Street expectations.
In addition to high borrowing costs, home buyers are also grappling with housing prices hovering around all-time highs; and in some regions, increased home insurance premiums.
Buyers may be waiting a while for any meaningful relief: Economists don’t expect the housing market to improve much this year as mortgage rates are likely to remain above 6% until 2026. That dashes any hopes for home ownership. home for first-time buyers and low-income families living in metropolitan areas seeing rapid home price growth like New York and San Diego.
“The fundamental strength of the economy is contributing to this increase in rates. Despite rising rates, Freddie Mac’s research highlights that consumers can save money by shopping around several different lender quotes,” Sam Khater, Freddie Mac’s chief economist, said in a release.
For decades, demand for housing has outstripped supply nationwide. Freddie Mac estimates there is a housing shortage of 3.7 million units.
“We have an affordability crisis, a housing shortage, and for the first time in my lifetime, parents feel that the American dream is slipping away from their children,” he said during his confirmation hearing Thursday on Capitol Hill.
However, there were some welcome improvements on this front last year. Total housing inventory rose through most of 2024, according to data from the National Association of Realtors, registering 1.33 million units at the end of November, up 17.7% from a year earlier.
Some homeowners who locked in a low mortgage rate before the Fed starts raising interest rates in 2022 have finally given up and decided to sell, despite the fact that their new mortgage rate will higher life. This has contributed to the increase in housing inventory. NAR Chief Economist Lawrence Yun said life events like marriage, divorce and new children eventually force homeowners to sell.
But this phenomenon – known as the lock-in effect – may not be reversed much this year, according to economists. This means that ongoing housing shortages may continue to drive up prices. To make matters worse, the continued rise in borrowing costs could dampen the pace of home building.
Home ownership has become a dream for Jeff Howard, a 35-year-old renter living in Atlanta. Not only has Howard struggled to find a job after receiving a master’s degree in healthcare administration in 2019, but he’s also maxed out all of his credit cards, making home ownership a distant financial goal.
Waiting on the field has proven to be Howard’s best option.
“I’m just watching the news about what the Federal Reserve is doing with interest rates and I’m just waiting for the housing market to explode,” Howard said. “I don’t foresee owning a home anywhere in the near or medium term.”
