US Mortgage Rates Near 7%, Squeezing Homebuyers in 2025

As of January 2, the average rate on a 30-year mortgage rose to 6.91%, up from 6.85% the previous week, based on data from Freddie Mac. The Mortgage Bankers Association also reported a rise in its measure, which increased by 8 basis points to 6.97% for the period ending December 27, marking a near six-month high.

The rising borrowing costs are negatively impacting housing affordability, leading to a drop in demand. The MBA’s home-purchase application index fell nearly 7%, reaching its lowest point since mid-November. Although these numbers are adjusted for seasonal changes, they remain subject to significant fluctuations around the holidays.

“This is not the ideal way to begin the year,” said Odeta Kushi, deputy chief economist at First American Financial Corp. “Experts are increasingly agreeing that 2025 will be another year of high rates for the housing market. This isn’t great news.”

Mortgage rates usually follow the trends in Treasury yields, which continued to rise in late December. This was influenced by Federal Reserve officials projecting a slower pace of interest rate cuts in 2025 due to persistent inflation.

“Mortgage rates are still high compared to last year, and the affordability challenges in the market remain,” said Sam Khater, Freddie Mac’s chief economist.

Kushi noted that if mortgage rates stabilize, even at these elevated levels, it could help the housing market begin to recover. If the Federal Reserve continues reducing its benchmark interest rate, mortgage rates could decrease as well.

Despite the end-of-year increase in mortgage rates, separate data from the National Association of Realtors revealed that homebuyers are becoming more accustomed to the higher rate environment. In November, when rates averaged about 6.8%, a measure of contract signings for existing homes reached the highest level since February 2023. Increased inventory has helped support demand.

The MBA’s survey, conducted weekly since 1990, includes responses from mortgage bankers, commercial banks, and thrift institutions, covering more than 75% of all retail residential mortgage applications in the United States.