Average mortgage rate reaches 7% for first time since May
The average mortgage rate topped 7% on Thursday for the first time since May. Credit: Newsday/Steve Pfost
The strength of the U.S. economy helped push mortgage rates above 7% this week, dimming hopes that Long Island homebuyers will see housing affordability improve this year.
The average 30-year fixed rate rose to 7.04% for the week ending Thursday, according to mortgage giant Freddie Mac. The average has now climbed for five straight weeks, and this week marks the first time since May it has ticked above 7%.
Last week, the average was 6.93%. Three years ago at this time, the average stood at 3.45%.
Mortgage rates have remained stubbornly above 6% for the past two years after they climbed sharply in the spring of 2022. The average published by Freddie Mac peaked in October 2023 at 7.79%.
Stronger than expected job growth contributed to the most recent upward move in mortgage rates, which change in part based on investors' expectations about the economy. The U.S. economy added 256,000 jobs in December, far surpassing economists' expectations of an additional 153,000 jobs, according to financial data and software company FactSet.
"The underlying strength of the economy is contributing to this increase in rates," Freddie Mac chief economist Sam Khater said in a statement Thursday.
Since the Federal Reserve began cutting its benchmark interest rate in September, the average mortgage rate has risen almost a full point. Long-term rates, such as those on 30-year mortgages, don't necessarily follow the same trend as the Fed's benchmark interest rate. Instead, they're often influenced by global demand for U.S. Treasurys and investors' inflation expectations.
Mortgage rates tend to rise during inflationary periods and fall when there is greater fear of a recession.
However, there was some good news for homebuyers hoping for lower rates this week. Investors viewed the latest U.S. inflation report, which showed consumer prices increased 2.9% in December compared with a year ago, as a sign the pace of price increases may slow further this year. A slower pace of inflation could lead to lower mortgage rates.
“Inflation is the enemy to mortgage rates,” said Christopher Roberti, head of growth and a loan officer at Hartford Funding in Woodbury.
Roberti, who works predominantly with first-time homebuyers, says he has sensed uneasiness in his local clients given the size of monthly mortgage payments at today’s rates.
He expects rates to hover in the 6.5% to 7% range this year. For buyers who can afford to purchase, putting off the decision may not help them get a better deal on a home, Roberti said.
"Customers will say to me, ‘I’m going to wait for the rates to drop,’ and I always say, ‘How long are you willing to wait, because some people have been waiting now two years,’ ” he said.
The combination of rising home prices and higher mortgage rates has forced borrowers to take larger mortgages to finance their purchases, said Kevin Dayton, vice president of mortgage lending at CrossCountry Mortgage in Melville.
“Over the course of the last 10 years, I’ve never seen people that were taking as much financing in comparison to their income as they are now," he said.
The outlook for lower mortgage rates in 2025 is much dimmer than it was six months ago, Selma Hepp, chief economist at CoreLogic in Washington, D.C., said in a statement.
“We expect the Fed to be even more incremental as it continues to battle inflation, to the tune of possibly no rate cuts through the year,” she said, adding she believes mortgage rates will remain above 7% this year.
The strength of the U.S. economy helped push mortgage rates above 7% this week, dimming hopes that Long Island homebuyers will see housing affordability improve this year.
The average 30-year fixed rate rose to 7.04% for the week ending Thursday, according to mortgage giant Freddie Mac. The average has now climbed for five straight weeks, and this week marks the first time since May it has ticked above 7%.
Last week, the average was 6.93%. Three years ago at this time, the average stood at 3.45%.
Mortgage rates have remained stubbornly above 6% for the past two years after they climbed sharply in the spring of 2022. The average published by Freddie Mac peaked in October 2023 at 7.79%.
Stronger than expected job growth contributed to the most recent upward move in mortgage rates, which change in part based on investors' expectations about the economy. The U.S. economy added 256,000 jobs in December, far surpassing economists' expectations of an additional 153,000 jobs, according to financial data and software company FactSet.
"The underlying strength of the economy is contributing to this increase in rates," Freddie Mac chief economist Sam Khater said in a statement Thursday.
Since the Federal Reserve began cutting its benchmark interest rate in September, the average mortgage rate has risen almost a full point. Long-term rates, such as those on 30-year mortgages, don't necessarily follow the same trend as the Fed's benchmark interest rate. Instead, they're often influenced by global demand for U.S. Treasurys and investors' inflation expectations.
Mortgage rates tend to rise during inflationary periods and fall when there is greater fear of a recession.
However, there was some good news for homebuyers hoping for lower rates this week. Investors viewed the latest U.S. inflation report, which showed consumer prices increased 2.9% in December compared with a year ago, as a sign the pace of price increases may slow further this year. A slower pace of inflation could lead to lower mortgage rates.
“Inflation is the enemy to mortgage rates,” said Christopher Roberti, head of growth and a loan officer at Hartford Funding in Woodbury.
Roberti, who works predominantly with first-time homebuyers, says he has sensed uneasiness in his local clients given the size of monthly mortgage payments at today’s rates.
He expects rates to hover in the 6.5% to 7% range this year. For buyers who can afford to purchase, putting off the decision may not help them get a better deal on a home, Roberti said.
"Customers will say to me, ‘I’m going to wait for the rates to drop,’ and I always say, ‘How long are you willing to wait, because some people have been waiting now two years,’ ” he said.
The combination of rising home prices and higher mortgage rates has forced borrowers to take larger mortgages to finance their purchases, said Kevin Dayton, vice president of mortgage lending at CrossCountry Mortgage in Melville.
“Over the course of the last 10 years, I’ve never seen people that were taking as much financing in comparison to their income as they are now," he said.
The outlook for lower mortgage rates in 2025 is much dimmer than it was six months ago, Selma Hepp, chief economist at CoreLogic in Washington, D.C., said in a statement.
“We expect the Fed to be even more incremental as it continues to battle inflation, to the tune of possibly no rate cuts through the year,” she said, adding she believes mortgage rates will remain above 7% this year.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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