Mortgage rates inch closer to 7% to close out 2024
Mortgage rates jumped again in the last week of 2024 despite three interest rate cuts from the Federal Reserve that year.
New York (CNN) — Mortgage rates are climbing again, in yet another unwelcome sign to homebuyers.
The standard, 30-year fixed-rate mortgage averaged just shy of 7% in the final week of 2024 ending on January 2, according to data from mortgage financing giant Freddie Mac. That’s the highest level in nearly six months and is also up from the prior week when mortgage rates averaged 6.85% versus the latest week’s average of 6.91%. A year ago, mortgage rates averaged 6.62%.
The latest uptick in mortgage rates comes despite the Federal Reserve’s quarter-point interest rate cut last month, its third cut of the year. However, the central bank lowered its outlook for the number of rate cuts it expects this year with inflation remaining above its 2% target and the labor market on solid footing.
While mortgage rates are directly impacted by actions the central bank takes, they are more closely aligned with the direction of 10-year US Treasury yields, which are a bellwether for mortgage rates. Over the past month, the 10-year Treasury yield has been steadily rising, partly due to the Fed’s revised outlook as well as the government’s widening debt burden, which many fear will continue to grow under a second Trump administration.
“Compared to this time last year, [mortgage] rates are elevated and the market’s affordability headwinds persist,” Sam Khater, Freddie Mac’s chief economist, said in a statement released Thursday.
Higher mortgage rates are keeping many would-be homebuyers on the sidelines. Mortgage applications decreased by 21.9% for the week ending December 27 compared to two weeks earlier, according to data the Mortgage Bankers Association published Thursday.
But that isn’t so uncommon for this time of year, said Mike Fratantoni, MBA’s chief economist. Around the holiday season, housing activity “typically grinds to a halt,” he said in a statement on Thursday. That tends to result in “declines in both refinance and purchase applications.”
A painful year for prospective homebuyers
Many prospective homebuyers went into 2024 hopeful that expected Fed rate cuts would lower mortgage rates and, as a result, unlock new housing inventory from homeowners who didn’t want to forfeit the lower mortgage rates they secured during the pandemic.
However, the Fed’s cutting cycle began later than even central bankers themselves had initially anticipated due to a surprise spike in inflation in the first quarter of 2024. But even as inflation cooled, the Fed held off on cutting rates until September, when it lowered rates by a half point, an unusually large move.
Mortgage rates initially dropped in anticipation of the Fed’s cut, but as it became more apparent that the labor market wasn’t imminently at risk of a dramatic, more painful slowdown that would prompt the Fed to act with more urgency to cut rates, mortgage rates started rising again.
The end product: A housing market that was virtually unchanged from a year ago.
Much of the homebuying activity from the past year came from Americans who were older and richer than ever due to a lack of affordable options for other demographic groups. The median existing-home sales price was $406,100 in November, the 17th consecutive month of year-over-year price increases, according to the National Association of Realtors. In November 2019, before the pandemic, the median sales price was $274,000, according to NAR.
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CNN’s Samantha Delouya contributed reporting.
