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The New Year is starting off with a whimper for would-be homebuyers and their agents, as mortgage rates climbed to levels not seen since last summer and mortgage lenders see applications dwindle.
Applications for purchase loans dropped by a seasonally adjusted 7 percent last week compared to the week before, and were down 15 percent from a year ago, according to lenders surveyed by the Mortgage Bankers Association.
Joel Kan
“Applications decreased last week as rising mortgage rates continued to discourage buyers from entering the market and put a damper on purchase activity,” MBA Deputy Chief Economist Joel Kan said, in a statement. “The 30-year fixed rate increased for the fourth consecutive week, reaching 6.99 percent — the highest rate since July 2024.”
Kan said mortgage lenders haven’t seen such weak demand for purchase applications since February 2024.
Applications to refinance were up 2 percent during the week ending Jan. 3 when compared to the week before, but down 6 percent from a year ago.
The increase in refinancing demand “was compared to recent low levels and was driven entirely by an increase in VA refinances, which continue to show weekly swings,” Kan said.
Mortgage rates resume their rise
Since hitting a 2024 low of 6.03 percent on Sept. 17, mortgage rates have climbed by nearly a full percentage point, as bond market investors who fund most mortgages fret about the pace of 2025 Fed rate cuts.
After a brief pause around Thanksgiving, rates on 30-year fixed-rate conforming mortgages eligible for purchase by Fannie Mae and Freddie Mac are on the rise again, averaging 6.94 percent Tuesday according to rate lock data tracked by Optimal Blue.
Although the Federal Reserve slashed short-term interest rates three times in the final four months of 2024, economic data shows progress in taming inflation has slowed. Bond market investors are also concerned that tariffs, tax cuts and mass deportations promised by President-elect Trump could reignite inflation.
Rates on 10-year Treasury notes, a barometer for mortgage rates, were on the rise Wednesday after CNN reported that Trump “is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries.”
Minutes from the Federal Reserve’s Dec. 18 meeting released Wednesday provide a strong signal that the Fed won’t cut rates when policymakers meet next on Jan. 29, Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.
But Tombs said forecasters at Pantheon still expect the Fed to gradually bring short-term rates down by a full percentage point in 2025 at alternate meetings in March, June, September and December.
Samuel Tombs
“We continue to think that the uplift to inflation likely to be triggered by the incoming administration’s policies will be too small to distract [Fed policymakers] from easing further in response to further weakness in the labor market,” Tombs said.
Futures markets tracked by the CME FedWatch Tool show investors think the economy will keep chugging along, and that the Fed will only cut rates by about half a percentage point next year.
According to Inman’s 2025 economic outlook, a soft landing for the economy would mean home prices keep rising and mortgage rates settle in at around 6 percent this year, with sales varying widely by region.
Surveys by Fannie Mae show Americans are more hopeful than they were a year ago that the economy is on the right track and that mortgage rates will come down, but only one in five polled in December thought it was a good time to buy a home.
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