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Housing Market Challenges Deepen as Mortgage Rates Near 7%

Quiver Editor

U.S. mortgage rates reached a six-month high this week, with the average rate on a 30-year fixed-rate mortgage climbing to 6.93%, according to Freddie Mac. This increase, up from 6.91% last week and 6.66% a year ago, reflects economic resilience and rising Treasury yields. Despite the Federal Reserve's 100-basis-point rate cut in 2024, borrowing costs remain elevated, further straining housing affordability amid already high home prices and limited entry-level housing supply.

The rise in mortgage rates, coupled with concerns over President-elect Donald Trump’s proposed policies, has fueled inflation fears among investors, pushing Treasury yields higher. Policies including tax cuts, increased tariffs, and potential mass deportations are contributing to market uncertainty. Sam Khater, Freddie Mac’s (FMCC) chief economist, highlighted the persistent challenges facing first-time buyers, emphasizing that affordability and supply constraints remain significant barriers in the housing market.

Market Overview:
  • Average 30-year fixed-rate mortgage increases to 6.93%, highest since July.
  • High Treasury yields drive up borrowing costs despite Fed rate cuts in 2024.
  • Limited housing supply and elevated prices squeeze potential buyers.
Key Points:
  • Economic resilience and inflation concerns keep mortgage rates elevated.
  • Trump’s proposed policies add to uncertainty in financial markets.
  • Entry-level homebuyers face significant affordability challenges.
Looking Ahead:
  • Mortgage rate trends will depend on inflation data and Fed policy in 2025.
  • Housing affordability may worsen without increased entry-level supply.
  • Market volatility likely as new administration’s policies take shape.
Bull Case:
  • Economic resilience and rising Treasury yields reflect a strong U.S. economy, which could support long-term housing market stability despite short-term affordability challenges.
  • Higher mortgage rates may cool housing demand, potentially stabilizing home prices and creating opportunities for buyers as competition eases.
  • The Federal Reserve’s 100-basis-point rate cut in 2024 provides some relief to borrowers, helping offset the impact of rising Treasury yields on mortgage rates.
  • Policy clarity under the Trump administration could reduce market uncertainty, improving investor confidence and stabilizing financial markets.
  • Efforts to address limited housing supply, particularly entry-level homes, could alleviate affordability pressures and expand access for first-time buyers.
Bear Case:
  • The increase in 30-year fixed mortgage rates to 6.93% exacerbates affordability challenges, particularly for first-time homebuyers already struggling with high prices and limited inventory.
  • Uncertainty surrounding President-elect Trump’s proposed policies, including tax cuts and tariffs, may fuel inflation fears, further driving up Treasury yields and borrowing costs.
  • Limited entry-level housing supply continues to constrain the market, leaving many prospective buyers priced out or unable to find suitable homes.
  • Market volatility tied to policy changes could deter investment in the housing sector, slowing construction and worsening the supply-demand imbalance.
  • Persistently high borrowing costs may lead to reduced homeownership rates, impacting broader economic growth tied to the housing market.

The latest rise in mortgage rates underscores the challenges in the U.S. housing market as affordability continues to deteriorate. Elevated borrowing costs, paired with limited housing inventory, have created significant hurdles for prospective buyers, particularly first-time homeowners. Inflation concerns and policy uncertainty add complexity to an already strained environment.

Looking ahead, the housing market will closely watch inflation data and Federal Reserve actions, as well as the potential impact of the Trump administration's policies. Addressing the supply gap, particularly in entry-level homes, remains critical to improving accessibility and stabilizing the market for future buyers.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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