Demand for home purchases fell last week to its lowest level since October as mortgage rates no longer fall in tandem with the Federal Reserve’s interest rate cuts, according to a survey of lenders by the Mortgage Bankers Association.
After adjusting for holiday and seasonal factors, the number of applications for purchase mortgages in the week ending January 2 was down 14% from the 2025 high recorded in the week ending November 28, according to the MBA’s latest weekly application survey.
MBA Purchase Loan Index
Source: MBA Weekly Application Survey.
The MBA Purchase Loan Applications Index (seasonally adjusted) fell for the fifth straight week to 159.3, the lowest level since the week ended October 17th.
The seasonally adjusted purchase index was still up 25% year-over-year, while MBA’s unadjusted purchase index showed a 10% increase in homebuyer demand.
Mortgage interest rates are within range
Mortgage rates tracked by Optimal Blue fell from 6.92% in May to a 2025 low of 6.12% on Oct. 28, as the Federal Reserve cut short-term rates by half a percentage point in September and October.
Central bank policymakers on December 10 approved a quarter-point rate cut for the third time this year, but released economic forecasts that suggested there could only be one cut next year. Mortgage rates have remained mostly range-bound since then, with Optimal Blue showing rates on 30-year fixed-rate loans averaging 6.16% on Tuesday.
Investors in the mortgage-backed securities that fund most home loans are weighing the prospect of further Fed interest rate cuts next year. Futures market investors on Wednesday saw only a 12% chance that the Fed would cut rates on Jan. 28, down from 25% on Dec. 5, according to the CME FedWatch tool.
While the Fed directly controls the short-term federal funds rate that banks charge each other for overnight loans, mortgage rates are determined primarily by investor demand.
The 30-year fixed-rate mortgage rate hit a 2024 low of 6.03% on September 17, on expectations of a Fed rate cut. But as the Fed began lowering short-term interest rates in the final four months of the year, investors worried that inflation was not yet under control, and mortgage rates rose as well.
Forecasters at Pantheon Macroeconomics continue to expect the Fed to cut interest rates three times in 2026 as the job market weakens and inflation recedes.
The number of job openings decreased by 303,000 from October to November, according to the latest Job Openings and Turnover Survey (JOLTS) data released Wednesday by the Bureau of Labor Statistics. The number of job openings for October was revised downward to 221,000, making the indicator the lowest level since September 2024.
The number of job openings is on the decline
The number of job openings was 7.146 million, down 41% from the record high of 12.134 million in March 2022, when the pandemic made it more difficult for employers to hire.
samuel’s tomb
As the unemployment rate rises and employment growth slows, the latest JOLTS data [Fed] Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note to clients that further policy easing is still needed to prevent unemployment from rising further and inflation ultimately falling below the 2% target.
Fannie Mae economists expect interest rates on 30-year fixed-rate conforming loans to fall below 6% by the end of this year, while MBA forecasters expect them to average 6.4% and only fall to 6.3% in 2027.
Difficult to predict mortgage interest rates
Source: Fannie Mae and Mortgage Bankers Association December 2025 Forecast.
Economist Doug Duncan, who has led well-regarded forecasting teams at both Fannie Mae and MBA, told Inman in December that tariffs and the end of 40 to 50 years of low nominal interest rates are increasing the uncertainty in these forecasts.
The personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, has moved away from the central bank’s 2% target since falling to 2.28% in April, reaching 2.79% in September.
“The current debate is all about tariffs, but tariffs are relative price changes and ‘once and for all,'” Duncan said. “I don’t think tariffs are the central cause of this problem. The underlying cause is inflation, which never went away until the tariff debate started.”
doug duncan
Without clear evidence that underlying inflation is returning to its 2% target, “we cannot expect mortgage rates to break through.” [below] Next year, it will be 6 percent, Duncan said. I think it’s around 6 1/4 to 6 1/2. ”
Get Inman’s Mortgage Overview Newsletter delivered straight to your inbox. Get the world’s biggest mortgage and closing news all in one place every Wednesday. Click here to subscribe.
Email Matt Carter
