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The drop in mortgage rates following the election is helping revive homebuyer interest, and incoming data showing the economy cooling in November could bring still more rate relief.
Applications for purchase loans were up by a seasonally adjusted 6 percent last week when compared to the week before, but down 21 percent from a year ago, according to a survey of lenders by the Mortgage Bankers Association.
“Mortgage rates fell to their lowest level in over a month last week, with the 30-year fixed rate decreasing to 6.69 percent,” MBA Deputy Chief Economist Joel Kan said, in a statement. “The recent strength in purchase activity continues, supported by lower rates and higher inventory levels, which are giving prospective buyers more options compared to earlier in the year.”
It was the fourth consecutive week that homebuyer demand for purchase mortgages increased, with demand at the highest level since January, Kan said.
After falling to a 2024 low of 6.03 percent on Sept. 17, rates for 30-year fixed-rate conforming mortgages bounced back to a fourth quarter high of 6.84 percent on Nov. 6, according to rate lock data tracked by Optimal Blue.
Mortgage rates ease
The Federal Reserve cut short-term interest rates on Sept. 18 and Nov. 7, and could approve another rate cut this month. But long-term interest rates were on the rise as the strength of the economy raised doubts about the pace of additional Fed rate cuts next year.
Bond market investors are also weighing whether tariffs, tax cuts and mass deportations promised by president-elect Donald Trump will be inflationary.
But the latest data on the economy suggests that growth continues to decelerate, which could motivate Fed policymakers to continue cutting rates.
Futures markets tracked by the CME FedWatch tool showed that as of Wednesday, Dec. 4, investors saw a 75 percent chance of another 25 basis-point Fed rate cut on Dec. 18, up from 66 percent a week ago.
Investors think there’s a 50 percent chance the Fed will lower the short-term federal funds rate by a full percentage point by the end of next year, up from 36 percent a week ago.
The growing conviction among bond market investors who fund most mortgages that the Fed will keep cutting rates has helped bring rates on 30-year fixed-rate mortgages back down to 6.68 percent Tuesday — well below the 2024 high of 7.27 percent registered on April 25, and the post-pandemic high of 7.83 percent seen in October 2023.
Economy shows signs of cooling
Closely watched indexes compiled by the Institute for Supply Management (ISM) tracking activity in the manufacturing and services industries showed the manufacturing sector continued to shrink in November, while growth in the services sector slowed.
The latest Manufacturing ISM Report On Business showed economic activity in the manufacturing sector contracted in November for the eighth consecutive month, with new orders growing but production and employment contracting.
The Services ISM Report On Business showed economic activity in the services sector expanded for the fifth consecutive month in November, although at 52.1 percent the Services PMI fell from 56 percent in October.
“Policy uncertainty due to the election result and the threat of tariffs were quoted as key worries for many of the respondents, and are likely weighing on the numbers,” Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said in a note to clients on the Services ISM.
Tuesday’s Job Openings and Labor Turnover Summary (JOLTS) report showed job openings little changed at 7.7 million on the last business day of October, but down by 941,000 from a year ago.
Job openings trending down
“Weak wage growth, in combination with the near-2 percent trend in productivity growth, suggests either that [core inflation] will fall further next year, or businesses’ profit margins will increase,” Pantheon Macroeconomics forecasters said in their Dec. 4 U.S. Economic Monitor.
“In our view, the outlook for sluggish growth in consumer demand next year suggests that inflation is more likely to fall than margins to expand. If we’re right, then the [Fed] should be able to continue to ease policy next year even if tariffs raise goods prices.”
The ADP National Employment Report showed private employers added 146,000 jobs in November, driven by strong hiring at large employers.
But Pantheon forecasters were dismissive of the ADP report, saying the initial estimates it provides have proved unreliable since a change in methodology in 2022. They pointed to the Indeed Job Postings Index as a more reliable measure of labor demand.
Indeed Job Postings Index
That index shows job postings down 10.1 percent from a year ago, with a seasonally adjusted drop of 5.2 percent in October and another 2.4 percent in November.
The latest reading of the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, showed annual growth in the price of goods and services moved away from the central bank’s 2 percent target in October. But at 2.3 percent, annual inflation is much closer to the Fed’s target than the 21st-century peak of 7.25 percent registered in June 2022.
In forecasts issued in November, MBA and Fannie Mae economists projected mortgage rates will remain above 6 percent for at least two years.
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