Mortgage rates likely to go back over 7% as they rise again

Conforming mortgage rates are climbing closer to the 7% mark again, while a second indicator released Thursday showed them at their highest since July.

The 30-year fixed rate averaged 6.91% as of Jan. 2, the Freddie Mac Primary Mortgage Market Survey reported. This marks the third consecutive week of increases and a gain of 6 basis points from last week's 6.85%. It is also now 29 basis points higher than it was a year ago at this time, when the average was 6.62%.

The 15-year FRM gained 13 basis points to 6.13%, versus 6% for the week of Dec. 26. For the same week in 2024, it was at 5.89%.

Other data, albeit lagging indicators, are more positive for the housing market.

"Compared to this time last year, rates are elevated and the market's affordability headwinds persist," Sam Khater, Freddie Mac's chief economist, said in a press release. "However, buyers appear to be more inclined to get off the sidelines as pending home sales rise."

Different measuring sticks use varying metrics in determining where rates are, which is why a wide variation exists.

The Mortgage Bankers Association's Weekly Application Survey, released earlier on Thursday, had the conforming 30-year FRM at 6.97% for the week ending Dec. 27. That number was close to where rates were at the start of 2024, noted Holden Lewis, home and mortgage expert at NerdWallet in a comment on the MBA report.

At this level, the tensions in the housing market will continue, with people having difficulty finding affordable homes to purchase, while potential sellers won't act because they want to hold on to the low rates they received in 2020 and 2021.

"The market would loosen if rates fell just half a percentage point," Lewis said. "That might not happen for a while."

Lender Price data on the National Mortgage News website at 11 a.m. Thursday put the 30-year FRM at 7.22%, a decrease of 2 basis points from the previous week.

Zillow's rate tracker at that same time had 30-year FRM offers through the site at 6.73%, a drop of 2 basis points both from Wednesday and from the prior week's average.

The last data posted on the Optimal Blue website has the conforming 30-year fixed at 6.863% on Dec. 31, up from 6.829% on Dec. 23.

The 10-year Treasury yield ended 2024 at 4.57%, after opening the year at 3.97%. As of 11 a.m. on Jan. 2, the yield was unchanged from the Dec. 31 close.

Continued U.S. economic growth during 2025, combined with ongoing concerns over inflation will help to keep mortgage rates elevated in 2025, said Greg McBride, chief financial analyst at Bankrate. The predictions came out before the latest Freddie Mac survey.

"Stubborn inflation and economic growth that has surprised to the upside in 2024 will give way to — stubborn inflation and slower, still solid economic growth in 2025," McBride said. "I am forecasting three interest rate cuts for the year, bringing the Fed funds rate to 3.50%-3.75% by year-end."

Yields on the 10-year Treasury should cross over the 5% mark at one point this year, as investors worry about inflation and unsustainable government deficits.

But they then will fall under 4% "amid short-lived growth scare," McBride said, before ending 2025 at 4.25%.

As for the 30-year FRM, rates should remain in the 6% range, but he expects "a short-lived spike above 7%." McBride joins other forecasters who do not expect rates to fall below 6%.

McBride noted that the 300-basis-point spread between the 10-year Treasury and 30-year FRM at the start of 2024 was down to 250 to 260 basis points by the end of the year, still wider than the historic norm.

His predictions are for those spreads to continue narrowing.

"I'm forecasting some further improvement in this spread during 2025, which combined with the year-end prediction of 4.25% on the 10-year Treasury yield, puts the average 30-year fixed rate at 6.5%," McBride said.