Homebuyers face tough news as mortgage rates continue to climb. After peaking near 8% in late 2023, rates briefly dropped below 6% in September. However, they have steadily risen since. This week, Freddie Mac reported the average 30-year fixed mortgage rate reached 6.84%, marking the seventh increase in eight weeks.
Experts predict mortgage rates will remain above 6% for at least two years. Lawrence Yun, Chief Economist at the National Association of Realtors, expects the “new normal” to settle around 6%. Rates as low as 3%, 4%, or 5% are unlikely to return soon. For prospective buyers, these high borrowing costs could make homeownership harder to afford.
Wells Fargo economists project mortgage rates averaging 6.3% by late 2024, remaining near this level through 2026. Similarly, Fannie Mae forecasts rates of 6.4% in 2025 and 6.1% in 2026.
Housing Market Impact and Economic Factors
Higher mortgage rates are already weakening the housing market. Home sales are on track for their slowest year since 1995, impacted by rising home prices and elevated borrowing costs. Despite a temporary dip in rates earlier this year, the market has seen little recovery in sales. The National Association of Realtors notes that home prices have consistently risen for over a year, making affordability a growing challenge.
Economic policies may further complicate the situation. If inflation rises, the Federal Reserve may resist lowering rates or even raise them. Additionally, government spending and tax cuts proposed by President-elect Donald Trump could increase the national debt. This could push up Treasury yields, which are closely tied to mortgage rates, driving borrowing costs even higher.
Recent economic data, including strong job and retail spending reports, have contributed to higher bond yields. Inflation data shows price increases may not slow as expected, making it harder for the Federal Reserve to reduce rates. The bond market remains sensitive to inflation, with rising debt and tariffs potentially pushing mortgage rates higher. Investor Paul Tudor Jones warns that growing government debt could pressure the bond market, affecting mortgage rates.
Some Bright Spots Amid Challenges
Despite challenges, some factors may support the housing market. The job market is strong, and wages are rising, potentially helping buyers manage higher rates. More homes are hitting the market as life changes prompt homeowners with low pandemic-era mortgage rates to sell.
Consumers are also adjusting to the high-rate environment. Lawrence Yun believes that as buyers grow accustomed to 6% or 7% rates, housing inventory growth, job creation, and new household formations could spur sales. However, many buyers will still face hurdles due to persistently high borrowing costs.
While mortgage rates may stay elevated, market and economic shifts could gradually improve conditions for some prospective homebuyers.
