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Mortgage rates have risen to over 7%, despite the Federal Reserve cutting interest rates, making the housing market challenging, CNBC reports.
Rates for a 30-year fixed mortgage were below 3% in 2021 but have jumped due to rising U.S. Treasury bond yields. Inflation fears and proposed policies, such as tariffs and tax changes, influence these yields. Thus, mortgage rates are likely to stay elevated, potentially not dropping below 6% until 2026.
This has left homebuyers with a tough choice: delay purchasing a home or buy at current rates while facing higher home prices. Consumers with a $300,000 mortgage at 7% will pay about $400 more per month compared to 5%. The increased mortgage premium, currently 2.4 percentage points (historically 1.7), reflects tighter lending standards and market volatility.
The typical homebuyer paid $406,100 for an existing home in November, up 5% from $387,800 a year earlier, according to the National Association of Realtors.
Financial experts suggest saving for a larger down payment to reduce mortgage costs or reconsidering whether renting is a more viable option. This year is expected to bring continued affordability challenges.
