30-year mortgage rate exceeds 7% for first time since May

The average rate on 30-year fixed-rate mortgages rose above 7 percent for the first time since May, Freddie Mac reported Thursday, extending a weeklong hike that could sideline more buyers and sellers .

The rate on the 30-year mortgage, the most popular home loan in the United States, jumped to 7.04 percent this week, up from 6.93 percent the week before. Mortgage rates tend to follow the yield on the 10-year Treasury note, which has risen in recent months in response to a string of strong economic data, persistent inflation and a potential increase in debt and deficits stemming from policies of the new Trump administration.

“The underlying strength of the economy is contributing to this rise in rates,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

There was a moment in late September when mortgage rates, after falling for months, appeared poised to fall below the symbolic 6% threshold, a boon for potential buyers. But that window is closed, at least for now.

Inflation has recently proven stubborn. In December, the consumer price index rose 2.9 percent from a year earlier, the Labor Department said Wednesday, indicating that the Federal Reserve has not yet won its battle against the rapid rise in prices. Last year, the Fed began cutting interest rates, which were at their highest level since the 2008 global financial crisis, by lowering them three times. The central bank has only announced two cuts this year and some forecasters believe policymakers may not cut rates at all in 2025.

Mortgage rates rose even as the Fed lowered its target rate. This divergence is largely because long-term rates, including those on mortgage and auto loans, are set by the market and reflect investors’ expectations about future economic conditions. Although the yield on the 10-year Treasury note has fallen in recent days following some encouraging signs in the latest inflation report, it remains much higher than it was just a few months ago.

And mortgage rates are more than twice as high as they were at the start of the coronavirus pandemic, when the average 30-year rate hovered around 3% during the 2020 and 2021 periods. many potential sellers reluctant to put their money where their mouth is. homes on the market, unwilling to part with lower rates on their existing mortgages.

But landlords could eventually adjust to current rates, said Lu Liu, an assistant professor of finance at the Wharton School of the University of Pennsylvania. “Maybe in a year or two people will get used to it and be ready to sell,” she said.