Rising Mortgage Rates Squeeze Homebuyers

By Ann Saphir

(Reuters) – The interest rate for the most popular U.S. home loan rose last week to an eight-month high of 7.09%, continuing an upward trend that’s affecting potential homebuyers already facing rising house prices and limited supply.

The average contract rate on a 30-year fixed-rate mortgage increased by 10 basis points in the week ended January 10, according to the Mortgage Bankers Association. This marks the fifth consecutive weekly rise and places the main home-loan rate nearly a full percentage point higher than its level in September, when the Federal Reserve began reducing short-term borrowing costs.

Although the Fed’s policy rate is now a full percentage point lower than it was then, mortgage rates have moved in the opposite direction, following a surge in Treasury yields spurred by concerns over persistent inflation and growing budget deficits.

As President-elect Donald Trump prepares to take office next week, his economic agenda includes extending the 2017 tax cuts, which could add trillions of dollars to the national debt. The U.S. budget deficit surpassed $1.8 trillion last year, the highest level recorded outside of the COVID pandemic.

The Fed has indicated it will cut interest rates more slowly this year due to worries over stagnation in achieving its 2% inflation target, coupled with uncertainty regarding the economic impacts of Trump’s proposed policies, including increased tariffs and immigration restrictions.

A new report on inflation is expected early Wednesday, with economists predicting that the Labor Department’s consumer price index will show a 2.9% increase in December compared to a year earlier, up from 2.7% in November.