Interest Developments Unsettle Real Estate Market – But There Are Bright Spots

The current developments in the mortgage market are shaping the situation: Mortgage rates have risen this week while the markets await the latest interest rate cut from the U.S. Federal Reserve. According to data from Freddie Mac, the average interest rate for a 30-year mortgage climbed to 6.72% in the week up to Wednesday, compared to 6.6% the previous week. The 15-year mortgage rate averaged 5.92%, compared to 5.84% previously. Many of Freddie Mac's surveys were conducted before the Federal Reserve cut the benchmark interest rate by 25 basis points and indicated that only two more rate cuts are likely in the following year. These prospects reduced hope for further cuts in 2025 and led to an increase in government bond yields and therefore mortgage rates. Mortgage News Daily reported on Wednesday afternoon an increase in the average 30-year mortgage rate to 7.13%. Sam Khater, Chief Economist at Freddie Mac, stated that home buyers are slowly coming to terms with the higher rates and becoming more willing to make property purchases. The Fed does not directly control mortgage rates. Instead, they follow the yields of the 10-year government bonds and the expectations of future Fed interest movements. Before the meeting, it was expected that the central bank would cut rates four times in the coming year. Fed Chairman Jerome Powell acknowledged at a press conference the Fed's influence on the real estate market in recent years. He said that real estate activity is very low – an indicator that the Fed's monetary policy is working. Many economic experts assume that mortgage rates will remain above 6% next year, although many expect a gradual decline. Despite high rates and nearly record-high prices, affordability remains a challenge. A bright spot is the market for existing home sales, which rose by 4.5% month-on-month in November to a seasonally adjusted rate of 4.15 million. Year-on-year, sales have increased by 6.1%. Lawrence Yun, Chief Economist of the National Association of Realtors, noted that more buyers are returning to the market as the economy creates jobs, the real estate supply grows compared to the previous year, and consumers adapt to the new norm of mortgage rates between 6% and 7%.