Mortgage Rates Slide to 6.87%, Foreshadowing Stronger Housing Demand—Despite Worryingly High Inflation Report

Mortgage rates nudged downward this week, signaling an imminent thawing of the real estate market, despite a concerning new report from the Labor Department revealing that U.S. inflation accelerated last month.

The average rate on 30-year fixed home loans slid to 6.87% for the week ending Feb. 13, down from 6.89% the week before, according to Freddie Mac. Rates averaged 6.77% the same week in 2024. 

“The 30-year fixed-rate mortgage continued to inch down this week, reaching its lowest
level thus far in 2025,” says Freddie Mac Chief Economist Sam Khater.

Mortgage rates have consistently remained near 7% for the past several months, undermining hopes that they could end the winter season closer to 6%, but Khater says the latest rate decrease is a good sign. 

“Recent mortgage rate stability is benefiting potential buyers, as purchase demand is stronger
than this time last year,” explains Khater. “This is an indication that a thaw in buyer activity could be on the horizon.”

Realtor.com® senior economist Joel Berner notes, “This is the lowest reading of the rate so far in 2025, but mortgage rates remain higher than they were one year ago at this time.”

“The 30-year fixed rate dropped despite the yield on the 10-year Treasury note rising over the past week as the stock market remained strong and inflation fears persisted, as a result of the Trump administration’s tariff threats, which we would expect to upward pressure on mortgage rates.”

Mortgage rates are driven by multiple factors, including the 10-year Treasury yield, inflation, the overall health of the economy, and government policies. 

The Treasury yield typically serves as a reliable barometer for which way mortgage rates are moving. If the yield on long-term bonds and notes decreases, mortgage interest rates tend to follow suit, but not always. 

Berner, however, says it might be too early to celebrate.

“Given yesterday’s news of consumer inflation coming in higher than expected, mortgage rates are unlikely to drop much more significantly any time soon, as debt market investors demand higher returns to account for weakening spending power and the Federal Reserve is unlikely to lower interest rates,” he explains.

Mortgage rates drop despite rising inflation

The consumer price index measuring overall prices of groceries, gasoline, and rents in the U.S. increased 3% in January from a year ago, up from 2.9% in December, according to the Labor Department’s data released on Wednesday.

Core consumer prices, which exclude the volatile food and energy categories, rose 3.3% in January year over year, up from 3.2% in December. Core prices on items like car insurance, airfare, and health care are considered a good indicator of inflation’s future trajectory.

Inflation also picked up on a monthly basis, with prices seeing an uptick of 0.5% in January from December, the largest jump since August 2023. 

Grocery prices were up 0.5% in January, pushed higher by a 15.2% surge in egg prices—the highest in nearly 10 years. Egg prices have soared a staggering 53% compared with a year ago after 40 million birds were wiped up in a culling driven by an avian flu epidemic. 

The growing inflation rate likely means that the Federal Reserve won’t be cutting rates anytime soon.

The Fed put its inflation target at 2%, but the rate has remained above that benchmark for the past six months. The central bank uses higher interest rates to rein in accelerating inflation. 

The worrying new inflation figures boosted yields on 10-year Treasury notes by up to 10 basis points, setting the stage for a possible uptick in mortgage rates, but instead, they bucked the trend. 

Home prices are still in decline, but the market warming up

The Realtor.com research team’s weekly housing trends update for the week ending on Feb. 13 shows that the median home list price nationwide fell by 1.2% from the same time last year. 

This week was the 37th in a row in which the national median list price was flat or falling from the corresponding week last year—a stretch that dates to the beginning of June 2024. 

With the mortgage rates staying elevated and sapping demand, home sellers continued slashing asking prices in a bid to draw in buyers as inventory piled up on the market. 

The total number of listings offering price reductions was up 38% compared with the same period last year, and the share of listings offering price cuts increased to 0.8%, up from 0.5% a week ago.

At the same time, fresh inventory increased for the fifth week in a row year over year, as the number of new listings surged by 11.3%, signaling sellers’ gradual return to the market

The number of homes for sale was up 27.5% this week compared with the same time in 2024. It was the fifth straight week where active inventory’s growth rate has increased, driven by the influx of fresh listings.

“Buyer activity has not quite kept up with seller activity, leading to this slight buildup, but more buyers will likely enter the market as the weather warms and the spring nears,” says Realtor.com senior economic research analyst Hannah Jones.

Homes stay unsold longer amid lagging demand

As supply continued to outstrip demand, listed homes were waiting for buyers longer. The typical home spent four days more on the market compared with this time last year.

Jones says this trend, which has lasted for 42 consecutive weeks, was indicative of an increasingly buyer-friendly market compared with the previous year, allowing house hunters more time to decide on their home purchase.

“Generally, homebuyers are feeling a bit better about the housing market, perhaps setting the stage for a strong spring,” predicts Jones.

Overall, Realtor.com economists project that home sales will increase in 2025 compared with the year before, which was marked by the lowest existing-home sales since 1996.

“Though mortgage rates remain elevated and most mortgage holders have a rate below today’s level, many sellers can’t afford to hold off any longer as families expand, new jobs in new cities are landed, and life rolls on,” says Jones.

Meanwhile, Berner says that homebuyers should temper their expectations when it comes to mortgage rates.

“The days of sub-4% mortgage rates are over, and if inflation continues to resist being stamped out, they may not be back for a long time,” adds the economist.

He also warns that recent buyers who were led to believe that they would be able to refinance their mortgage in the near future may find themselves tethered to a rate between 6% and 7% for longer than they might have expected.

“Saving up for as large of a down payment as possible is key in this high mortgage rate environment, so that the smallest amount of home purchase possible has to be financed,” suggests Berner.