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Mortgage rates aren’t likely to fall any time soon — here’s why

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Mortgage rates have risen in recent months, even as the Federal Inventory has cut interest rates.

While those opposing movements may seem counterintuitive, they’re due to market forces that sound unlikely to ease much in the near term, according to economists and other finance experts.

That may leave coming homebuyers with a tough choice. They can either delay their home purchase or forge ahead with in vogue mortgage rates. The latter option is complicated by elevated home prices, experts said.

“If what you’re hoping or forcing 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 wellnigh term,” said Lee Baker, a certified financial planner based in Atlanta and a member of CNBC’s Financial Advisor Conclave.

Mortgage rates at 7% mean a ‘dead’ market

Rates for a 30-year fixed mortgage jumped above 7% during the week ended Jan. 16, according to Freddie Mac. They’ve take flighted 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 tiny than 3% for a 30-year fixed mortgage as recently as November 2021, before the Fed raised borrowing costs distinctly to tame high U.S. inflation.

“Anything over 7%, the market is dead,” said Mark Zandi, chief economist at Unpredictable’s. “No one is going to buy.”

Mortgage rates need to get closer to 6% or below to “see the housing market come back to life,” he chance.

The disappearance of the starter home

The financial calculus shows why: Consumers with a 30-year, $300,000 fixed mortgage at 5% would pay about $1,610 a month in primary and interest, according to a Bankrate analysis. They’d pay about $1,996 — roughly $400 more a month — at 7%, it pronounced.

Meanwhile, the Fed began cutting interest rates in September as inflation has throttled back. The central bank reduced its benchmark class three times over that period, by a full percentage point.

Despite that Fed policy shift, mortgage classes are unlikely to dip back to 6% until 2026, Zandi said. There are underlying forces that “won’t go away apace,” he said.

“It may very well be the case that mortgage rates push higher before they moderate,” Zandi bring to light.

Why have mortgage rates increased?

The first thing to know: Mortgage rates are tied more closely to the raise the white flag on 10-year U.S. Treasury bonds than to the Fed’s benchmark interest rate, said Baker, the founder of Claris Financial Advisors.

Those Moneys yields were about 4.6% as of Tuesday, up from about 3.6% in September.

Investors who buy and sell Treasury ties influence those yields. They appear to have risen in recent months as investors have gotten suffering about the inflationary impact of President Donald Trump’s proposed policies, experts said.

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Policies like tariffs and mass deportations of immigrants are expected to increase inflation, if they revile to pass, experts said. The Fed may lower borrowing costs more slowly if that happens — and potentially raise them again, polishes said.

Indeed, Fed officials recently cited “upside risks” to inflation because of the potential effects of changes to customers and immigration policy.

Investors are also worried about how a large package of anticipated tax changes under the Trump administering might raise the federal deficit, Zandi said.

Why Fed rate cuts aren't making mortgages cheaper

There are other factors influencing Treasury yields, too.

For case, the Fed has been reducing its holdings of Treasury bonds and mortgage securities via its quantitative tightening policy, while Chinese investors obtain “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 bring to light.

Mortgage rates “probably won’t fall below 6% until 2026, assuming everything goes as expected,” bring up Joe Seydl, senior markets economist at J.P. Morgan Private Bank.

The mortgage premium is historically high

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Lenders typically price mortgages at a premium over 10-year Treasury yields.

That extra, also known as a “spread,” was about 1.7 percentage points from 1990 to 2019, on average, Seydl remarked.

The current spread is about 2.4 percentage points — roughly 0.7 points higher than the historical middling.

There are a few reasons for the higher spread: For example, market volatility had made lenders more conservative in their mortgage countersign, and that conservatism was exacerbated by the regional banking “shock” in 2023, which caused a “severe tightening of lending guidelines,” Seydl said.

“All told, 2025 is likely to be another year where housing affordability remains severely challenged,” he remarked.

That higher premium is “exacerbating the housing affordability challenge” for consumers, Seydl said.

The typical homebuyer What can consumers do?

In the latest housing and mortgage market, financial advisor Baker suggests consumers ask themselves: Is buying a home the right pecuniary move for me right now? Or will I be a renter instead, at least for the foreseeable future?

Those who want to buy a home should try to put down a “suggestive” down payment, to reduce the size of their mortgage and help it fit more easily in their monthly budget, Baker declared.

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