Mortgage Rates Plunge: Homebuyers Are Taking Notice!
Exciting news for homebuyers! Demand is soaring for the fourth consecutive week, reaching its highest point since January. This surge comes on the heels of a post-election dip in mortgage rates, which seems to have some staying power.
Ready to elevate your game in real estate? Whether you’re revamping your business strategy, embracing cutting-edge technology, or on the hunt for innovative tactics to ride the next market wave, Inman Connect New York is your launching pad for success! The Next Chapter is on the horizon, and you won’t want to miss out. Join us and thousands of industry leaders from January 22-24, 2025.
With mortgage rates dipping following the recent elections, we’re witnessing a revival in homebuyer enthusiasm! The latest data hints at further economic cooling in November, which could pave the way for even more favorable rates.
Last week, applications for purchase loans jumped by a seasonally adjusted 6% compared to the prior week, though they remain 21% lower than this time last year, according to a recent survey from the Mortgage Bankers Association.
“Mortgage rates have plummeted to their lowest point in over a month, with the 30-year fixed rate now at just 6.69%,” stated the MBA’s Deputy Chief Economist, Joel Kan. “This uptick in purchase activity is fueled by both lower rates and a higher inventory of homes, giving potential buyers a wider array of choices than earlier in the year.”
This marks the fourth straight week of increased homebuyer demand for purchase mortgages, with levels reaching their peak since January, Kan noted.
After hitting a 2024 low of 6.03% on September 17, rates for 30-year fixed-rate mortgages have fluctuated, peaking at 6.84% on November 6, according to data from Optimal Blue.
Mortgage Rates Take a Breather
The Federal Reserve took action, cutting short-term interest rates on September 18 and again on November 7, with a potential for more cuts this month. However, rising long-term interest rates are raising eyebrows as the economy shows signs of strength, leading to questions about future Fed rate cuts.
Investors in the bond market are weighing potential inflationary impacts from policies proposed by president-elect Donald Trump, including tariffs and tax cuts.
Nevertheless, recent economic data suggests a slowdown, which could prompt Fed officials to continue lowering rates.
As of December 4, futures markets tracked by the CME FedWatch tool indicated a 75% chance of another 25 basis-point Fed rate cut on December 18, up from 66% the previous week. Market sentiment also suggests a 50% likelihood that the Fed will reduce short-term federal funds rates by a full percentage point by the end of next year, an increase from 36% a week earlier.
This growing confidence among bond investors has contributed to the drop in 30-year fixed-rate mortgage rates to 6.68%, significantly lower than the 2024 peak of 7.27% recorded on April 25 and the post-pandemic high of 7.83% noted last October.
Signs of an Economic Cooldown
Key indexes from the Institute for Supply Management (ISM) reveal a contraction in the manufacturing sector for the eighth straight month, while growth in the services sector is beginning to slow.
The latest Manufacturing ISM Report on Business indicates that although new orders are on the rise, production and employment continue to decline.
The Services ISM Report shows a fifth consecutive month of expansion in the services sector, but the Services PMI fell to 52.1% from 56% in October.
“The uncertainty surrounding policies due to the election outcome and potential tariffs are major concerns for many respondents and likely impacting these numbers,” explained Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, in a note regarding the Services ISM.
The Job Openings and Labor Turnover Summary (JOLTS) report released Tuesday showed job openings remained stable at 7.7 million at the end of October, although this figure is down by 941,000 from a year ago.
Job Openings on the Decline
“Weak wage growth combined with a near 2% trend in productivity growth indicates that either core inflation will decrease further next year or that businesses’ profit margins will increase,” noted Pantheon Macroeconomics in their December 4 U.S. Economic Monitor.
“We believe that sluggish growth in consumer demand next year suggests inflation is more likely to fall than profit margins to expand. If our assumption holds true, then the Fed should be able to maintain an easier policy stance next year even if tariffs push up the prices of goods.”
The ADP National Employment Report revealed that private employers added 146,000 jobs in November, largely driven by significant hiring from larger companies.
However, Pantheon economists expressed skepticism toward the ADP report, citing its initial estimates’ unreliability following a change in methodology in 2022, and they pointed to the Indeed Job Postings Index as a more accurate representation of labor demand.
The Indeed Job Postings Index
This index indicates job postings are down 10.1% from last year, with a seasonally adjusted decline of 5.2% in October followed by another 2.4% drop in November.
The most recent reading of the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, showed that annual growth in the price of goods and services has moved away from the central bank’s 2% target in October. Nevertheless, at 2.3%, annual inflation is much closer to the Fed’s goal than the peak of 7.25% recorded in June 2022.
In forecasts released in November, economists from both the MBA and Fannie Mae predict that mortgage rates will remain above 6% for at least the next two years.
Stay informed! Subscribe to Inman’s Mortgage Brief Newsletter for a weekly roundup of the biggest mortgage and closing news delivered straight to your inbox every Wednesday. Click here to subscribe.
