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Homebuyer demand for mortgages picked up last week as borrowers took advantage of a dip in rates that’s since been erased and with economists now forecasting that rates have little room to retreat in the months ahead.
Applications for purchase loans picked up by a seasonally adjusted 2 percent last week compared to the week before but were down 1 percent from a year ago, according to a weekly survey by the Mortgage Bankers Association.
The pickup in purchase applications during the week ending Nov. 15 was driven by FHA and conventional loans eligible for purchase by Fannie Mae and Freddie Mac, with FHA purchase applications up 7 percent.
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Joel Kan
“For-sale inventory has loosened in some markets and some potential buyers have been able to take advantage of increasing supply and lower FHA rates, which were down slightly in comparison to the conforming 30-year fixed rate,” MBA Deputy Chief Economist Joel Kan said in a statement.
After hitting a 2024 low of 6.03 percent on Sept. 17, rates on 30-year fixed-rate conforming mortgages have climbed back to levels not seen since July, according to rate lock data tracked by Optimal Blue.
Mortgage rates on the upswing
Optimal Blue data shows rates on 30-year fixed-rate mortgages hitting 6.84 percent the day after the Nov. 5 election before falling 14 basis points over the next two days, providing homebuyers with a brief reprieve.
Although the Federal Reserve cut short-term interest rates on Sept. 18 and Nov. 7, long-term rates have been climbing on the expectation that the Fed will be in less of a hurry to lower rates over the next several quarters.
Bond market investors are also weighing whether promises by President-elect Donald Trump to impose higher tariffs, cut taxes and deport millions of immigrants will prove to be inflationary.
Rates forecast to come down gradually
Source: November 2024 forecasts by Fannie Mae and the Mortgage Bankers Association.
In forecasts released Thursday, MBA and Fannie Mae economists predicted rates on 30-year fixed-rate mortgages are unlikely to fall below 6 percent next year or in 2026.
Fannie Mae economists said 2024 is on track to be the worst year for existing home sales since 1995 and that the recent rise in rates has dampened their expectations for a 2025 rebound.
Economists at Pantheon Macroeconomics said that while they expect the Fed to cut short-term interest rates by an additional 1.25 percentage points this week and next, many homeowners will continue to feel locked in to the rate on their existing mortgage.
“Lower mortgage rates would help the housing market at the margin, and we expect rates to fall next year as the Fed gradually eases policy further,” Pantheon economists said in their latest U.S. Economic Monitor. “But the gulf between new and existing mortgage rates likely will remain so wide that a very gradual and muted recovery in sales is the best we can realistically anticipate.”
Slowing economic growth will weigh on hiring, and “that will deplete the pool of potential homebuyers, further delaying any housing market recovery,” Pantheon economists said.
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