By Rajwa Quasim
The average U.S. mortgage rate has climbed above 7% for the first time since Jan 2025, adding another challenge for homebuyers who’s already dealing with high property prices and inflation.
According to Freddie Mac, the average rate for a 30-year fixed mortgage reached 7.03% this week, up from 6.95% a week earlier and 6.30% a year ago.it marks the fifth consecutive weekly increase and comes as borrowing cost have been pushed higher by rising Treasury yields and renewed inflation concerns.
READ: Donald Trump to privatize mortgage firms Fannie Mae and Freddie Mac (January 3, 2025)
The increase is significant because the 30-year fixed mortgage is the most common type of home loan in the U.S. the rate had briefly fallen to around 6% earlier this year, which had given hope for the potential buyers regarding the financial conditions. But the latest is now putting pressure on household budgets.
The mortgage rate increase follows the Federal Reserve’s decision last week to increase its benchmark interest rate by a quarter percentage point to a range of 3.75% to 4%. First hike since 2023 and policy makers also indicated that another increase could come before the end of the year.
Mortgage rates are heavily influenced by the bond market, in particular, yields on 10-year U.S. Treasury securities. It has climbed sharply, reaching about 5.15%. It’s the highest level since 2007. Apart from these, the ongoing war in Iran resulted in higher energy prices, which in turn affected inflation.
“A 7% handle is as much psychological as mathematical, and it arrives at the point in the season when leverage usually shifts toward buyers,” said Anthony Smith, a senior economist at Realtor.
The higher rates come at a difficult time for the housing market. The median price of an existing home reached $429,100 in August, an annual increase seen in home prices to 38 consecutive months. Mortgage applications for home purchase also fell 11% when compared to a year earlier.
In contrast, Freddie Mac’s chief economist Sam Khater said in a statement, “The housing market remains supported by a solid labor market and an economy that is growing at a healthy rate.”
READ: Donald Trump to privatize mortgage firms Fannie Mae and Freddie Mac (January 3, 2025)
Meanwhile, economists have warned that 7% carries psychological significance for buyers and sellers. Crossing the level could discourage buyers and will reduce the housing activity during a season which was traditionally important for home sales.
Still, the market has not completely stalled. New home sales jumped 6.4% in August.
As the midterm elections are on the way, Democrats are most likely to use it as a weapon against the trump administration. According to CNN poll, only 27% of Americans approved of Trump’s handling of the economy, down 22 points from 2018.