Mortgage Rates on the Rise Ahead of Federal Reserve’s Interest Rate Cut
As the Federal Reserve prepared to make its latest interest rate decision, mortgage rates took a surprising turn upwards. According to Freddie Mac data, the average 30-year mortgage rate climbed to 6.72% in the week ending Wednesday, up from 6.6% the previous week. Meanwhile, the average 15-year mortgage rate edged up to 5.92% from 5.84%.
Federal Reserve’s Rate Cut Fails to Stem Mortgage Rate Hike
Despite the Fed’s 25-basis-point rate cut on Wednesday, mortgage rates continued to rise. The central bank’s decision to trim benchmark interest rates was seen as a sign that further cuts might be limited in 2025, leading to a spike in Treasury yields and mortgage rates. By Wednesday afternoon, the average 30-year mortgage rate had jumped to 7.13%, according to Mortgage News Daily.
Homebuyers Adapting to Higher Mortgage Rates
Freddie Mac’s chief economist, Sam Khater, noted that mortgage rates have returned to levels seen in 2023. “Homebuyers are gradually coming to terms with these higher rates and are starting to move forward with their home purchases, resulting in increased activity,” Khater said.
The Fed’s Indirect Impact on Mortgage Rates
While the Federal Reserve does not directly control mortgage rates, they closely track the 10-year Treasury yield and changes in expectations about future benchmark interest rate moves. The Fed’s decision to cut rates only twice in 2025 has led analysts to reassess their expectations.
Housing Market Challenges Persist
High interest rates, combined with near-record-high home prices, continue to make affordability a challenge for many would-be buyers. However, there are signs of improvement in the market. Existing home sales, for instance, saw a 4.5% increase in November, reaching a seasonally adjusted rate of 4.15 million, according to the National Association of Realtors (NAR).
A Glimmer of Hope in the Housing Market
NAR chief economist Lawrence Yun attributed the sales growth to an improving economy, increased housing inventory, and consumers adapting to higher mortgage rates. “More buyers are entering the market as the economy adds jobs, housing inventory grows, and consumers get used to a new normal of mortgage rates between 6% and 7%,” Yun said.
What’s Next for Mortgage Rates?
Housing economists expect mortgage rates to remain above 6% next year, although many predict a gradual decline. As the housing market continues to navigate high interest rates and affordability challenges, one thing is clear: homebuyers will need to adapt to a new normal in the mortgage landscape.
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