Homebuyer demand rose for the fourth week in a row and could be at its highest level since January as interest rates continue to fall after the election.
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Lower mortgage rates since the election have revived interest among homebuyers, and future data showing the economy is cooling in November could lead to further rate easing.
According to a survey of lenders by the Mortgage Bankers Association, applications for purchase loans last week rose a seasonally adjusted 6% from the previous week, but were down 21% from a year earlier.
“Last week, mortgage rates fell to their lowest level in more than a month, with the 30-year fixed rate dropping to 6.69%,” MBA Deputy Chief Economist Joel Kang said in a statement. “Recent buying activity has continued to be strong, supported by lower interest rates and higher inventory levels, giving prospective buyers more options than they had earlier this year.”
According to Prime Minister Suga, this is the fourth consecutive week that homebuyers’ demand for mortgage loans has increased, and demand is at its highest level since January.
30-year fixed-rate conforming mortgage rates fell to a 2024 low of 6.03% on Sept. 17 before hitting a fourth-quarter high on Nov. 6, according to rate lock data tracked by Optimal Blue. It rebounded to 6.84%.
Relaxation of mortgage interest rates
The Fed lowered short-term interest rates on September 18 and November 7, and could approve further cuts this month. However, the strong economy has raised doubts about the pace of further interest rate cuts by the Federal Reserve next year, and long-term interest rates have been on the rise.
Bond market investors are also considering whether President-elect Donald Trump’s promised tariffs, tax cuts and mass deportations will lead to inflation.
But the latest economic data suggests growth continues to slow, which could motivate Fed policymakers to continue cutting rates.
As of Wednesday, Dec. 4, investors believed there was a 75% chance the Fed would cut rates by another 25 basis points on Dec. 18, according to futures markets tracked by the CME FedWatch tool. That’s up from 66%.
Investors see a 50% chance that the Fed will cut the short-term federal funds rate from 36% a week ago by the end of next year.
Interest rates on 30-year fixed-rate mortgages fell to 6.68% on Tuesday, with growing confidence among investors in the bond market that funds most mortgages that the Fed will continue to cut rates. This is well below the 2024 high of 7.27% recorded on April 25th. And the post-pandemic high was 7.83 percent in October 2023.
The economy is showing signs of cooling down
A closely watched index compiled by the Institute for Supply Management (ISM), which tracks manufacturing and services activity, showed that manufacturing continued to contract in November, while growth in services slowed.
Manufacturing economic activity contracted for the eighth straight month in November, with new orders increasing but production and employment contracting, according to the latest Manufacturing ISM Business Report.
According to the Services ISM Business Report, economic activity in the services sector expanded for the fifth consecutive month in November, but the Services PMI fell to 52.1% from 56% in October.
“Policy uncertainty from election results and the threat of tariffs were cited as key concerns by many respondents,” Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said in a client note on Service ISM. “These are likely to be weighing on the numbers.” .
Tuesday’s Job Openings and Turnover Summary (JOLTS) report showed the number of job openings on the last business day of October was little changed at 7.7 million, but down 941,000 from a year earlier.
The number of job openings is on the decline
“Slower wage growth, combined with productivity growth trending closer to 2%, suggests one of two things: [core inflation] “Next year it will fall further, or corporate profit margins will increase,” forecasters at Pantheon Macroeconomics said in the Dec. 4 U.S. Economic Monitor.
“In our view, weaker consumer demand growth next year suggests that inflation is more likely to fall than margins widen. If we are right; [Fed] Even if tariffs raise commodity prices, the government should be able to continue its easing policy next year. ”
Private employers added 146,000 jobs in November, with strong hiring by large employers, according to the ADP National Employment Report.
But Pantheon forecasters rejected the ADP report, saying the initial estimates it provided had proven unreliable since the methodology changed in 2022, and that labor demand He cited the Indeed job index as a more reliable indicator.
Indeed Job Index
According to the index, job openings fell 10.1 percent year over year, with a seasonally adjusted 5.2 percent decline in October and a further 2.4 percent decline in November.
The latest reading of the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure, showed annual growth in the prices of goods and services moving away from the central bank’s October target of 2%. It was shown that However, the annual inflation rate was 2.3%, much closer to the Fed’s target than the 21st century peak of 7.25% recorded in June 2022.
In a forecast released in November, MBA and Fannie Mae economists expected mortgage rates to remain above 6% for at least two years.
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