Recent data from Freddie Mac reveals that mortgage rates have climbed to nearly 7%, marking the highest level in almost six months. This increase is a concern for potential homebuyers, as rates have risen from 6.85% in the prior week to 6.91% in the final week of 2024. A year ago, the average mortgage rate was 6.62%.
Despite the Federal Reserve's recent quarter-point interest rate cut, which was the third cut of the year, mortgage rates continue to rise. The central bank adjusted its outlook for further rate cuts due to inflation exceeding its 2% target and a strong labor market.
Mortgage rates are closely tied to 10-year US Treasury yields, which have been increasing steadily over the past month. Factors contributing to this rise include the Fed's revised outlook and concerns about the government's growing debt burden.
Freddie Mac's chief economist, in a recent statement, highlighted that current rates are higher compared to the previous year, posing affordability challenges for the market. This has led to a decrease in mortgage applications, with a 21.9% drop for the week ending December 27 compared to two weeks earlier, according to the Mortgage Bankers Association.
Chief economist of the MBA, Mike Fratantoni, noted that during the holiday season, housing activity typically slows down, resulting in declines in both refinance and purchase applications. This seasonal trend contributes to the current decrease in mortgage applications.
