Mortgage Rates Soar to 6.85%: Housing Market Braces for Extended High-Cost Era

U.S. Mortgage Rates Continue to Climb, Reaching Highest Level Since July

The average rate on a 30-year mortgage in the United States has increased for the second consecutive week, reaching 6.85%. This marks the highest level since mid-July and represents a significant jump from 6.72% last week. Compared to a year ago, when the rate stood at 6.61%, homebuyers are facing notably higher borrowing costs.

Mortgage rates have experienced considerable fluctuations throughout the year, hitting a low of 6.08% in September and peaking at 7.22% in May. Despite these variations, economists project that the average rate on a 30-year mortgage will remain above 6% next year, with some forecasts suggesting it could reach as high as 6.8%.

The upward trend is not limited to 30-year mortgages. The average rate for 15-year fixed-rate mortgages also saw an increase this week, rising to 6% from 5.92% last week. This rate is slightly higher than the 5.93% recorded a year ago.

These elevated mortgage rates, coupled with rising home prices, are creating significant barriers to homeownership for many Americans. Although sales of previously occupied U.S. homes increased in November for the second consecutive month, the housing market remains in a slump and may be facing its worst year since 1995.

Several factors are influencing these mortgage rate trends. The yield on U.S. 10-year Treasury bonds, which directly affects mortgage rates, has increased following the Federal Reserve’s indication of fewer rate cuts next year than previously forecasted. The Fed’s actions and the overall inflation trajectory continue to impact the 10-year Treasury yield.

Looking ahead, potential policy changes under the incoming administration could further influence mortgage rates. President-elect Donald Trump’s initiatives may affect inflation and national debt, potentially keeping mortgage rates elevated due to their impact on the 10-year Treasury yield. The yield, which was below 3.7% in September, has recently reached 4.61% in trading.

As the housing market navigates these challenges, potential homebuyers and industry professionals alike will be closely monitoring these trends and their implications for the real estate landscape in the coming year.