The Blubber

Mortgage rates surpassed 7% this week, a critical psychological barrier, underscoring the persistent affordability challenges in the U.S. housing market.

The average rate for a 30-year fixed mortgage reached 7.04% in the week ending January 16, according to Freddie Mac's Thursday report. This marks the fifth consecutive weekly rise and the highest level since May. Rates have climbed nearly a full percentage point since late September, when the Federal Reserve began cutting interest rates. Meanwhile, the yield on the 10-year U.S. Treasury note, which heavily influences mortgage rates, has fluctuated—rising in recent weeks due to stubborn inflation but falling on Wednesday after the latest Consumer Price Index report showed inflation progress.

The Federal Reserve has signaled only two rate cuts for this year, which are unlikely to occur until later, according to Wall Street forecasts.

In addition to higher borrowing costs, homebuyers face record-high home prices and, in many areas, surging home insurance premiums.

Long-Term Challenges

Relief for buyers may remain elusive. Economists predict mortgage rates will stay above 6% through 2026, which could dampen hopes for homeownership, particularly for first-time buyers and low-income households in rapidly growing metro areas like New York and San Diego.

“The underlying strength of the economy is driving these rate increases. Despite the rise, Freddie Mac research shows consumers can save by shopping for quotes from multiple lenders,” said Sam Khater, Freddie Mac’s chief economist.

The ongoing mismatch between supply and demand also exacerbates the affordability crisis. Freddie Mac estimates a nationwide housing shortage of 3.7 million units.

“We’re in the midst of an affordability crisis and a housing shortage, and for the first time in my lifetime, parents feel the American dream is slipping away for their children,” Scott Bessent, President-elect Donald Trump’s Treasury Secretary nominee, said during his confirmation hearing Thursday.

Glimmers of Hope

There were some improvements in 2024, with total housing inventory increasing to 1.33 million units by November—a 17.7% year-over-year rise, according to the National Association of Realtors (NAR). Some homeowners, locked into low mortgage rates before the Fed’s 2022 rate hikes, are now selling despite higher borrowing costs for their next homes. Life changes like marriage, divorce, and expanding families continue to drive home sales, NAR Chief Economist Lawrence Yun noted.

However, economists caution that the so-called "lock-in effect"—where homeowners hesitate to sell due to their favorable mortgage rates—may persist, keeping housing inventories tight and prices high. Elevated borrowing costs could further slow the pace of new home construction, adding to the challenges.

Waiting Game for Buyers

For individuals like Jeff Howard, a 35-year-old Atlanta renter, homeownership feels like an unattainable goal. Struggling with student debt and maxed-out credit cards, Howard has resigned himself to waiting.

“I’m just keeping an eye on what the Federal Reserve does with rates and hoping for the housing market to open up,” Howard said. “I don’t see owning a home in the near or medium term.”