Purchase offers are coming in at the slowest pace since February 2024 as mortgage rates return to last summer’s levels, the Mortgage Bankers Association’s survey of lenders found.
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The new year is starting off with a bang for prospective homebuyers and their agents, as mortgage rates have risen to levels not seen since last summer and mortgage lenders are seeing fewer applications.
Purchase loan applications last week were down a seasonally adjusted 7% from the previous week and 15% from a year earlier, according to financial institutions surveyed by the Mortgage Bankers Association.
Joel Kang
“Applications declined last week as rising mortgage rates continued to discourage buyers from entering the market and dampened purchasing activity,” MBA Deputy Chief Economist Joel Kang said in a statement. “The 30-year fixed rate rose for the fourth consecutive week to reach 6.99%, the highest rate since July 2024.”
Suga said this is the first time since February 2024 that housing lenders have seen demand for purchase offers so weak.
The number of refinance applications for the week ending January 3 increased by 2% from the previous week, but was down 6% from a year earlier.
Kang said the increase in refinance demand “is due solely to an increase in VA refinances compared to recent lows, which continues to be volatile on a weekly basis.”
Mortgage interest rates resume rising
Since hitting a 2024 low of 6.03% on September 17, mortgages have declined as investors in the bond market, which funds most mortgages, are worried about the pace of Fed rate cuts in 2025. Interest rates have risen by almost 1 percentage point.
After a brief hiatus around Thanksgiving, interest rates on 30-year fixed-rate conforming mortgages available from Fannie Mae and Freddie Mac are rising again on Tuesday, according to rate lock data tracked by Optimal Blue. The average is 6.94%.
The Fed cut short-term interest rates three times in the last four months of 2024, but economic indicators show progress in curbing inflation is slowing. Bond market investors are also worried that President-elect Trump’s promised tariffs, tax cuts and mass deportations could reignite inflation.
The interest rate on the 10-year Treasury note, a barometer of mortgage rates, fell Wednesday after CNN reported that President Trump is “considering declaring a national economic emergency to provide legal basis for broad universal tariffs against allies and adversaries.” Since then, it has been on an upward trend.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note to clients that the Dec. 18 Federal Reserve Board meeting minutes, released Wednesday, will not be available at the next meeting of policymakers on Jan. 29. He said this is a strong signal that the Fed will not cut interest rates.
But Toombs said Pantheon’s forecasters still expect the Fed to cut short-term interest rates by 1 percentage point in stages in 2025 at alternate meetings in March, June, September and December. said.
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“We continue to think that any increase in inflation likely to be caused by the incoming administration’s policies will be too small to be a distraction.” [Fed policymakers] “We will refrain from further easing in response to further weakness in the labor market,” Toombs said.
Futures markets tracked by the CME FedWatch tool show investors believe the economy will continue to perform well and that the Fed will only cut interest rates by about 0.5 percentage points next year.
Inman’s economic outlook for 2025 suggests that if the economy hits a soft landing, home prices will continue to rise this year and mortgage interest rates will settle at around 6%, but sales will vary widely by region.
Fannie Mae research shows Americans are more hopeful than a year ago that the economy is on the right track and mortgage rates will fall, but December poll shows it’s a good time to buy a home Only one in five people thought so.
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