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Mortgage rates are no longer on the decline, but would-be homebuyers seem interested in exploring their options as more inventory comes on the market, a weekly lender survey by the Mortgage Bankers Association suggests.
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The MBA’s Weekly Applications Survey showed that homebuyer demand for purchase loans only rose by a seasonally adjusted 1 percent last week when compared to the week before. But looking back a year, purchase loan demand was up 9 percent.
Incoming data shows the economy is still growing at a solid pace, which helps explain why mortgage rates were up modestly last week, MBA Chief Economist Mike Fratantoni said.
Mike Fratantoni
“The news for the week was that more homebuyers appear to be entering the market,” Fratantoni said in a statement.
“Inventories of both new and existing homes have been increasing over the course of 2024, meaning that potential buyers have properties to look at and now have somewhat lower mortgage rates leading to better affordability.”
Mortgage rates bottom out
Rates on 30-year fixed-rate loans hit a 2024 low of 6.03 percent on Sept. 17, according to rate-lock data tracked by Optimal Blue.
The Federal Reserve approved a dramatic, 50 basis-point reduction in short-term interest rates the next day, but bond market investors who fund most mortgages had already priced that move into their appetite for mortgages.
Mortgage rates are slightly higher since the Fed made its first rate cut in more than four years on Sept. 18, largely because central bank policymakers signaled that they don’t anticipate making future cuts as quickly or severely as some investors had expected.
The latest Fed “dot plot” shows policymakers envision bringing the federal funds rate down by a total of two percentage points this year and next. That implies more modest 25 basis-point cuts in November and December, followed by several rate cuts totaling 1 percentage point in 2025.
At an appearance Monday, Fed Chair Jerome Powell confirmed that the Fed is likely to proceed cautiously. Policymakers are “not on any preset course” as they attempt to balance their goal of bringing inflation down to 2 percent against the risk of sparking a dramatic upturn in layoffs, Powell said.
“The risks are two-sided, and we will continue to make our decisions meeting by meeting,” Powell said at the National Association for Business Economics’ annual meeting. “As we consider additional policy adjustments, we will carefully assess incoming data, the evolving outlook, and the balance of risks. Overall, the economy is in solid shape; we intend to use our tools to keep it there.”
In the near term, forecasters at Pantheon Macroeconomics predict the death and destruction caused by Hurricane Helene and strikes at major U.S. ports and Boeing could soon have more Americans filing unemployment claims.
“We doubt, though, that a run of higher claims numbers will persuade the Fed to ease by 50 basis points in November, as it should be clear in the state-level claims data that the sudden jump has been driven by Helene, port strikes and Boeing,” Pantheon forecasters said in their latest U.S. Economic Monitor newsletter.
Pantheon continues to forecast that the Fed will cut rates by 25 basis points in November, followed by 50 basis points in December.
Bond market investors who determine mortgage rates will be keeping a close eye on inflation and employment data, and future Fed moves. But the steady decline in mortgage rates since the end of April has already reignited interest in refinancing.
According to Optimal Blue, borrowers were locking in rates averaging 6.08 percent Tuesday on 30-year fixed-rate loans, a full 1.75 percentage points lower than the post-pandemic high of 7.83 percent registered in October 2023.
Although the latest MBA Weekly Applications survey showed applications to refinance were down 3 percent last week when compared to the week before, refi demand is up 186 percent from a year ago. Requests to refinance accounted for more than half (54.9 percent) of all mortgage applications last week, the survey found.
Sub-6 mortgage rates on the horizon?
Source: Fannie Mae and Mortgage Bankers Association forecasts, September 2024.
Economists at Fannie Mae and the Mortgage Bankers Association forecast rates on 30-year fixed-rate loans will drop below 6 percent during the second quarter of 2025, in time for the spring homebuying season.
In a Sept. 23 forecast, MBA economists said they expect rates on 30-year fixed-rate mortgages will average 6.2 percent during the final three months of 2024, and drop to 5.8 percent in Q4 2025.
Fannie Mae economists in a Sept. 10 forecast projected that rates on 30-year mortgages will average 6.1 percent during Q3 2024, and 5.7 percent in Q4 2025.
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