US Mortgage Rates Near 7%, Casting Shadows Over the Housing Market

The average 30-year mortgage rate climbed to 6.91% as of January 2, up from 6.85% just a week earlier, according to data released Thursday by Freddie Mac. Similarly, the Mortgage Bankers Association (MBA) reported an increase of 8 basis points, bringing the rate to 6.97% for the period ending December 27—marking a nearly six-month high.

These elevated borrowing costs are intensifying affordability challenges and dampening demand. The MBA’s index of home-purchase applications dropped nearly 7% during the same period, reaching its lowest level since mid-November. While the figures are seasonally adjusted, they remain susceptible to fluctuations during the year-end holiday period.

“It’s not exactly a good way to start the new year,” remarked Odeta Kushi, deputy chief economist at First American Financial Corp. “The consensus among industry experts is that 2025 will be another year of prolonged high rates for the housing market. This is not great news.”

Rising Rates and Economic Headwinds

Mortgage rates typically follow Treasury yields, which continued their upward trajectory in late December. This was driven by Federal Reserve policymakers projecting a slower pace of interest-rate cuts in 2025, citing persistent inflationary pressures.

“Compared to this time last year, rates are elevated, and affordability challenges in the market persist,” said Sam Khater, chief economist at Freddie Mac, in a statement released Thursday.

However, some experts suggest that if mortgage rates stabilize—even at higher levels—it could pave the way for a housing market recovery. Kushi noted that potential interest-rate cuts by the Federal Reserve might ease mortgage rates further, providing additional relief.

 

Signs of Buyer Adaptation

Despite the late-year spike in mortgage rates, data from the National Association of Realtors indicate that prospective homebuyers are gradually adjusting to the higher rate environment.

In November, when mortgage rates averaged approximately 6.8%, a key measure of contract signings for previously owned homes reached its highest level since February 2023. This uptick in demand has been partly supported by increased housing inventory.

The MBA survey, conducted weekly since 1990, encompasses data from mortgage bankers, commercial banks, and thrifts. It captures over 75% of all retail residential mortgage applications in the U.S., providing a comprehensive view of market trends.

As the housing market braces for another challenging year, experts remain divided on the timeline for recovery. However, stabilization in mortgage rates and continued adjustments by buyers may offer glimmers of hope in the months ahead.