Mortgage rates have surged above 7% for the first time in years, according to Freddie Mac data released January 16. The increase is attributed to investor concerns over President Donald Trump’s policy agenda and rising inflation.
In recent months, mortgage rates have risen despite the Federal Reserve cutting interest rates. Economists expect this trend to continue, with rates unlikely to fall below 6% until 2026. This has left prospective homebuyers with a tough decision: delay their purchase or opt for current mortgage rates, which are complicated by elevated home prices.
Experts warn that higher mortgage rates mean a “dead” market. Mark Zandi, chief economist at Moody’s, says anything over 7% is a sign that the market is unviable. Only when rates reach 6% or below can the housing market recover.
The current rate of 7% means consumers will pay around $1,996 in principal and interest for a $300,000 mortgage, compared to $1,610 at 5%. The Federal Reserve’s efforts to curb inflation have led to reduced benchmark interest rates, but underlying forces suggest that mortgage rates won’t decrease until 2026.
The rise in mortgage rates is largely driven by the yield on 10-year U.S. Treasury bonds, which has increased due to investor concerns over Trump’s policy agenda and potential inflationary effects of his proposed policies. Investors also worry about a large package of tax changes under the Trump administration, which could raise the federal deficit.
The high mortgage premium is contributing to the housing affordability challenge. The spread between 10-year Treasury yields and mortgage rates is around 2.4 percentage points, compared to an average of 1.7 points over the past decade. This higher premium is exacerbating the issue for consumers.
In light of these factors, financial advisor Lee Baker advises consumers to ask themselves if buying a home is the right decision at this time. Those considering purchasing should aim to put down a significant down payment and avoid subjecting their savings to market volatility. Savers can explore alternative investment options, such as money market funds or high-yield bank accounts, for a more stable return.
Source: https://www.cnbc.com/2025/01/21/mortgage-rates-arent-likely-to-fall-any-time-soon-heres-why.html