Mortgage Rates Locked at High Levels in the US: Could New Law Give the Market a Breather?

Waiting buyers continue to experience major disappointment regarding the decrease in housing costs and the easing of the market in the United States. Geopolitical tensions with Iran and the inflationary pressures triggered by this situation cause mortgage rates to remain stubbornly high. Moreover, the possibility of the Federal Reserve (Fed) raising interest rates again to control price pressures further increases uncertainties in the markets. Despite all this negative economic picture, a bipartisan new housing law aimed at increasing housing supply and facilitating accessibility in the coming years is expected to come into effect. If US President Donald Trump does not veto the law, it will automatically become official at midnight on Friday, bringing a ray of long-term hope to the markets.

Recent data from the market confirms that 30-year fixed mortgage rate averages are hovering around 6.49 percent, lingering near the highest levels of the year. These rates closely track the 10-year yield of the US Treasury bond, which is closely tied to the market's inflation expectations. The fear that conflicts in the Middle East and rising oil prices could lead to permanent inflation is changing the direction of investments, keeping bond yields high. The fear that the Fed might resort to a possible rate hike in the face of these economic pressures sets the stage for the continuation of the current high-interest environment. This situation not only makes current home purchases more difficult but also strengthens expectations of a general contraction in the market.

In contrast, some real estate platforms and economists paint a more optimistic picture in the medium term, anticipating a gradual decline in interest rates. For instance, Zillow estimates that mortgage rates could fall to around 6.3 percent by the end of 2026. However, experts emphasize that this decline will still remain higher than the figures from the last quarter of the previous year, and this situation will negatively impact affordability. The disappearance of the relatively advantageous environment in interest rates during the fall and winter months of last year could make market conditions even harsher for buyers. Therefore, even if interest rates are expected to enter a downward trend, it seems quite difficult for price and cost pressures in the housing market to disappear completely in the short term.

The current high interest rate environment continues to keep a large portion of potential homebuyers away from the market, and this directly reflects on sales figures. According to data released by the National Association of Realtors (NAR), existing home sales recorded a 2.4 percent decrease in June compared to May. This decline clearly reveals the cooling in the market, given that it occurred during the spring sales season, which is normally one of the most active periods of the year. Nevertheless, achieving a 2.8 percent increase in sales compared to the same period last year indicates that demand has not completely collapsed. However, despite this noticeable drop in sales, the median sale price of existing homes reached 440 thousand 600 dollars as of June, breaking the all-time high record for June.

This stubborn upward trend in mortgage rates is considered a reflection of deeper structural problems in the market, namely the lack of housing supply. The prolonged housing shortage causes buyers to compete for a much smaller number of homes, directly driving prices up. Right at this point, the bill approved by the US Congress, named the 'Road to the 21st Century Housing Act', is of vital importance with the goal of increasing housing supply. This law aims to facilitate the integration of factory-built prefabricated homes into the market and provide grants and forgivable loans for the repair of existing homes that have become unusable. Even though President Trump has avoided signing the law, if he does not veto it by Friday evening, the law will automatically come into effect and, according to experts, will serve as a building block that will positively affect housing prices and availability nationwide in the long run.