US mortgages at 6% pose critical test for frozen housing market
Loan costs are a key target of US President Donald Trump’s proposals to make housing more affordable
[BOSTON] With the crucial spring homebuying season ahead, real estate agents finally have something fresh to sell: the lowest mortgage rates in three years.
The big question is whether that will be enough to coax reluctant buyers into the market.
The average for 30-year, fixed loans was 6.06 per cent, down from 6.16 per cent last week and the lowest since September 2022, data from Freddie Mac showed on Thursday (Jan 15). That’s also the last time rates were below 6 per cent.
Loan costs are a key target of US President Donald Trump’s proposals to make housing more affordable, and they dropped after his announcement last week of a US$200 billion mortgage-bond buying campaign. Rates that have lingered higher for longer have sidelined would-be buyers and sellers for years.
Most recently, contract signings dropped to the lowest seasonally adjusted levels on record in December, with the exception of the pandemic lockdowns in April 2020, Redfin data dating back to 2012 show.
In some ways, conditions for buyers are already improving, with inventory rising slightly, price growth flattening and rates down from around 7 per cent in early 2025. To really unstick the market, though, mortgage costs would have to plunge, many housing experts say. That’s because few homeowners with cheaper loans are eager to sell and take on a higher rate to buy a new place.
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About 7 out of 10 borrowers are locked into rates below 5 per cent, according to data tracker Ice Mortgage Technology.
‘It’s a trade-off’
Homes now are actually more affordable than they have been since 2020, once income growth is factored in, data from Compass show. But in times of economic uncertainty, like this one, buyers tend to hesitate, said Mike Simonsen, chief economist at the brokerage.
“It’s a trade-off between cheaper rates and job insecurity,” he said. “What remains to be seen for spring of 2026 is which one wins. The optimistic view is, by early in the spring, conditions would be significantly better than last spring.”
Shoppers also are not happy with much of the inventory that’s available, which is why listings are sitting on the market, according to JD Adamson, a Compass agent who sells higher-end homes in Houston. He said that he’s hopeful that will change once the peak season begins in a couple months.
Borrowers already are able to get loans below 6 per cent, with adjustable-rate mortgages, and that’s a psychological threshold, he said.
“We’ve been waiting for that threshold to break,” Adamson said. “It’s a good selling point.”
But more than half of borrowers have rates lower than 4 per cent, Ice Mortgage Technology’s data show, suggesting that costs would have to fall below that level for many of those homeowners to even consider moving.
“We are still not at a point where this is going to be really meaningful,” said Julia Fonseca, finance professor at the University of Illinois at Urbana-Champaign who has studied the effect of mortgage rates on inventory. “It’s hard to know what the figure is to change this – 3 per cent would do it, but the closer you get to the rates people have, the more borrowers you unlock. At what point does the market look normal? That is hard to say.”
‘Drop in the ocean’
The chaos unleashed by Trump’s battles against US Federal Reserve chair Jerome Powell might not necessarily result in cheaper rates. The risk is that if investors start to question the independence of the Fed, it might drive up the Treasury yields that guide mortgage rates.
The state of the economy, especially inflation and employment, will be crucial in determining the direction for housing, according to Thomas Ryan, North America economist for Capital Economics. Trump’s bond purchases alone may not do much for consumers, he said.
“Our view is that US$200 billion of purchases is a drop in the ocean of the mortgage-backed securities market,” Ryan said. “It’s not enough.”
By the end of this year, rates will settle at 6.5 per cent, according to the firm, which recently lowered its projections from 6.75 per cent.
Still, so much depends on geography. Across the Northeast and Midwest, where prices are rising quickly and inventory is tight, the risk is that lower rates might drive values even higher by increasing buyer competition. Shoppers in weaker areas, especially in the Sun Belt, would benefit because there are plenty of listings to choose from.
In Northern California, sales have been lifted by the AI wealth effect as buyers cash in tech stocks. Alex Lam, a Compass agent in Burlingame, south of San Francisco, said his customers still pay close attention to mortgage rates.
Buyers see a window of opportunity to act before prices move higher, and if rates fall later, they can always refinance, Lam said. Last weekend, he had no breaks during a jam-packed open house for a modest 1,300-square-foot (121-square-metre) house in San Bruno that he listed for US$1.298 million.
“They think home prices are going up, and that’s going to price them out of the market,” Lam said. BLOOMBERG
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