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U.S. Mortgage Rates Climb to Highest Since July
More expensive mortgages are a drag on a full-fledged housing recovery, economists say
By Matt Grossman, WSJ
Jan. 9, 2025 2:56 pm ET
Sales of new single-family homes have been subdued at less than two-thirds the rate at the peak of the pandemic market boom.
U.S. mortgage rates are back at their highest level since last summer, frustrating home buyers waiting for a break from some of the steepest borrowing costs in more than a decade.
Home sales have shown signs of a rebound in recent months, but those gains have come despite costlier financing, a weight economists say is continuing to drag on a full-fledged housing recovery.
The average new 30-year fixed-rate mortgage cost 6.93% this week, Freddie Mac said Thursday. That is the most expensive since July. Mortgage rates have been stuck firmly above 6% since late 2022, following a decade when rates in the 3% to 4% range were the norm.
More expensive mortgages add a significant cost to homeownership for families, who are also facing high property prices and a shortage of available homes. Sales of new single-family homes have been subdued at less than two-thirds the rate at the peak of the pandemic market boom, and existing-home sales have stagnated as well, according to government data.
“It’s certainly not good news for home buyers when mortgage rates get bumped up,” said Lawrence Yun, chief economist at the National Association of Realtors. Sales have started to gain some more momentum in the past few months as buyers and sellers run out of patience waiting for lower rates and come to the market regardless, Yun said.
Many home buyers hoped that the interest-rate cuts by the Federal Reserve that kicked off in September would make sealing a deal for a house more affordable. Mortgage rates tend to move alongside the interest costs the federal government pays on its longer-term debt, which in turn fall when investors expect a stretch of lower rates set by the Fed.
But the central bank’s rate cuts didn’t do much to jump-start the real-estate market in 2024. Even as mortgage rates fell last summer, home prices stayed high, because few homeowners were selling and a broad national shortage of homes persisted.
Then, the news got worse. Even though the Fed cut interest rates significantly last fall, mortgage rates rebounded in line with a rise in the yield on longer-term U.S. Treasury notes. Despite the rate cuts, global investors were growing worried that stubborn inflation and solid economic growth would lead the Fed to keep interest rates higher than initially expected.
The Fed’s benchmark interest rate has fallen by a percentage point since mid-September—but the yield on the 10-year Treasury has moved in the other direction, climbing by a percentage point.
“When the Fed started cutting, we were expecting 10 rate cuts in all,” said Chris Low, chief economist at FHN Financial. “Now, the market is expecting a grand total of six, including the four we’ve already had.”
Adding to the pain, mortgage rates have grown more expensive compared with other borrowing costs—a change driven by shifts in Wall Street’s appetite for investing in mortgage debt.
Rates could come down a bit if this extra expense, or spread, falls in 2025, Yun said.
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