Key Points
- Rates on 30-year fixed rate mortgages rose above 7% in the week ending January 16, 2025 according to Freddie Mac data.
- Inflation fears and proposed policies, such as tarriffs continue to weaken the bond market.
- According to Fannie Mae, rates unlikely to fall below 6% until 2026.
Mortgage rates have risen in recent months, even as the Federal Reserve has cut interest rates.
While those opposing movements may seem counterintuitive, they're due to market forces that seem unlikely to ease much in the near term, according to economists and other finance experts.
That may leave prospective homebuyers with a tough choice. They can either delay their home purchase or forge ahead with current mortgage rates. The latter option is complicated by elevated home prices, experts said.
"If what you're hoping or wishing for is an interest rate at 4%, or housing prices to drop 20%, I personally don't think either one of those things is remotely likely in the near term,"" said Lee Baker, a certified financial planner based in Atlanta and a member of CNBC's Financial Advisor Council.
Mortgage Rates remain at 7%
Rates for a 30-year fixed mortgage jumped above 7% during the week ended Jan. 16, according to Freddie Mac. They've risen gradually since late September, when they had touched a recent low near 6%.
Current rates represent a bit of whiplash for consumers, who were paying less than 3% for a 30-year fixed mortgage as recently as November 2021, before the Fed raised borrowing costs sharply to tame high U.S. inflation.
Meanwhile, the Fed began cutting interest rates in September as inflation has throttled back. The central bank reduced its benchmark rate three times over that period, by a full percentage point.
Despite that Fed policy shift, mortgage rates are unlikely to dip back to 6% until 2026, Zandi said. There are underlying forces that "won't go away quickly," he said.
"It may very well be the case that mortgage rates push higher before they moderate," Zandi said.
Why have mortgage rates increased?
The first thing to know: Mortgage rates are tied more closely to the yield on
10-year U.S. Treasury bonds
than to the Fed's benchmark interest rate, said Baker, the founder of Claris Financial Advisors.
Those Treasury yields were about 4.6% as of Tuesday, up from about 3.6% in September.
Investors who buy and sell Treasury bonds influence those yields. They appear to have risen in recent months as investors have gotten worried about the inflationary impact of President Donald Trump's proposed policies, experts said.
Policies like tariffs and mass deportations of immigrants are expected to increase inflation, if they come to pass, experts said. The Fed may lower borrowing costs more slowly if that happens - and potentially raise them again, experts said.
Indeed, Fed officials recently cited "upside risks" to inflation because of the potential effects of changes to trade and immigration policy.
Investors are also worried about how a large package of anticipated tax changes under the Trump administration might raise the federal deficit, Zandi said.
There are other factors influencing Treasury yields, too.
For example, the Fed has been reducing its holdings of Treasury bonds and mortgage securities via its quantitative tightening policy, while Chinese investors have "turned more circumspect" in their buying of Treasurys and Japanese investors are less interested as they can now get a return on their own bonds, Zandi said.
Mortgage rates "probably won't fall below 6% until 2026, assuming everything goes as expected," said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.
