If homebuyers were expecting mortgage rates to ease this year, the first two weeks of 2025 have put a damper on those hopes as borrowing costs climbed to monthslong highs.
The latest data from mortgage giant Freddie Mac showed a fifth consecutive week of increased mortgage rate averages. As of Thursday, the average 30-year, fixed-rate mortgage was about 6.93%. That’s higher than the previous week, and the highest average since July.
That upward pressure was apparent in the more volatile, daily measures of mortgage rates, too. According to Mortgage News Daily, the 30-year, fixed-rate mortgage was at 7.17% as of Thursday morning.
The 15-year, fixed-rate mortgage average also increased in the week that ended Wednesday, when it hit 6.14%, according to Freddie Mac. On a daily basis, the rate had climbed from the previous day to 6.54%, Mortgage News Daily’s measure showed.
It’s a trend that’s been caused by the resilient U.S. economy, according to Freddie Mac’s Chief Economist Sam Khater.
“The continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability,” he said in a statement.
Borrowers' new reality
Though it’s a fairly incremental change centered on decimal-point increases, even a small tick upward or downward in mortgage rates can have profound and lasting impacts on the cost of a home for borrowers.
For example, if a buyer purchased a $400,000 home with a 20% down payment at Thursday’s daily mortgage rate, they’d pay about $3,300 per month. If mortgage rates ticked down to 7%, that monthly payment goes down to about $3,350.
It’s a small change on a monthly basis. But when compounded, it’s a difference of $600 each year. Over the 30-year lifetime of a loan, it’s an $18,000 difference in borrowing costs.
Buyers appear to be feeling that pressure already. Applications for mortgages have stalled in recent weeks and sunk to 11-month lows, according to the Mortgage Bankers Association.
But some economists and analysts have suggested that the slowdown may be temporary. Instead they said consumers are starting to accept and adjust to higher rates and are feeling optimistic about the future of the mortgage market.
Earlier this week, a report from Fannie Mae said consumer sentiment toward home purchases in December was “substantially higher” than the same time a year earlier. The increase was spurred by a belief among consumers that mortgage rates will decline in the next year, according to the mortgage giant.
Fannie Mae Chief Economist Mark Palim said in a statement that could be reflective of “a slow acclimatization to the generally less-affordable market conditions."
Other real estate professionals have pointed to additional positive signs in the market, such as increasing inventory, that could motivate buyers.
“While borrowing costs are higher, there’s the more welcome news of rising inventory levels in many areas of the country,” Mortgage Bankers Association President Bob Broeksmit said in a statement.
National Association of Realtors’ chief economist Lawrence Yun made a similar observation.
“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” he said in a statement last week.
As for what comes next, it depends on what the next set of data about the economy says, according to Matthew Graham, chief operating officer of Mortgage News Daily wrote in a post on Wednesday.
“There's no way to know if rates are headed to 8 percent,” he said. “As has been and continues to be the case, economic data does the most to guide the path forward for rates. Specifically, any heroic drop in rates would require downbeat data on the economy and inflation.”