Benchmark U.S. mortgage rates inched closer to the 7 percent mark last week as long-dated Treasury yields climbed to their highest levels since the spring.

According to Freddie Mac’s Primary Mortgage Market Survey, the average contract interest rate on 30-year fixed-rate mortgages reached a six-month high of 6.91 percent for the week ending Jan. 2. This is up 6 basis points from last week and 29 basis points from a year ago.

The average 15-year fixed-rate mortgage also reached a six-month high of 6.13 percent, rising 13 basis points from a week ago.

“Inching up to just shy of 7 percent, mortgage rates reached their highest point in nearly six months,” Sam Khater, chief economist at Freddie Mac, said in a statement. “Compared to this time last year, rates are elevated and the market’s affordability headwinds persist. However, buyers appear to be more inclined to get off the sidelines as pending home sales rise.”

Likewise, the Mortgage Bankers Association’s weekly survey showed that the average 30-year fixed-rate mortgage climbed by 8 basis points, to 6.91 percent, for the week ending Dec. 27, the highest since July 2024.

Higher mortgage costs can exacerbate housing affordability challenges, chipping away at homebuying demand.

The organization reported that mortgage applications tumbled by 12.6 percent, down for the third consecutive week. Mortgage application volumes are at their lowest in 10 months.

“Not surprisingly, this increase in rates—at a time when housing activity typically grinds to a halt—resulted in declines in both refinance and purchase applications,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.

Mortgage rates typically track U.S. Treasury yields, and the 10-year yield is viewed as the primary benchmark for the direction of the mortgage market.

The Federal Reserve started its easing cycle in September and followed through on a jumbo half-point interest rate cut. The central bank has now initiated two more quarter-point rate cuts.

Heading into the rate-cutting program, it was widely anticipated that Treasury yields and costs for borrowing instruments (mortgages, credit cards, and auto loans) would decline. Instead, there has been a divergence between the Fed’s cuts and Treasury yields.

Over the past three months, the 10-year yield has surged by nearly a full 1 percent to as high as 4.63 percent, even though the Fed has reduced the benchmark federal funds rate by 1 percent.

What Lies Ahead?

“For bonds, it’s high anxiety and yields in a trading range at least around these levels for some time,” Malek said in a note emailed to The Epoch Times. “The market has all of this factored in.”

According to Bankrate chief financial analyst Greg McBride, the 10-year Treasury yield and 30-year fixed mortgage rate could finish 2025 at 4.25 percent and 6.5 percent, respectively.

“Expect a volatile year in financial markets—both stocks and bonds—with the 10-year Treasury yield going above 5 percent at one point on worries of inflation and unsustainable government deficits, falling under 4 percent amid a short-lived growth scare, but ending the year at 4.25 percent as the economy delivers decent growth for the year,” McBride said in his latest forecast for 2025.

Specialist Meric Greenbaum works on the floor of the New York Stock Exchange as the rate decision of the Federal Reserve is announced, on Dec. 18, 2024. (Richard Drew/AP Photo)

Redfin economists project mortgage rates will average near 7 percent throughout 2025. They say this will be driven by a more hawkish Federal Reserve and elevated budget deficits.

However, mortgage rates could fall to around 6 percent “if the economy weakens and/or if plans for tariffs and tax cuts are dialed back,” they say.

At the same time, median home prices and sales will rise steadily throughout 2025.

“Prices will rise at a pace similar to that of the second half of 2024 because we don’t expect there to be enough new inventory to meet demand,” they wrote in a report last month.

“We expect existing home sales to tick up next year, ending 2025 at an annualized rate of between 4.1 million and 4.4 million.”

In the meantime, Lawrence Yun, chief economist at the National Association of Realtors, says prospective homebuyers may have acclimated to a high-rate climate.

Based on recent industry data, Yun could be correct.

Existing home sales rose by 4.8 percent in November, totaling 4.15 million units. New home sales advanced 5.9 percent, reaching 664,000 units. Pending home sales increased by 2.2 percent.

“Home sales momentum is building,” he said in a statement. “More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6 percent and 7 percent.”