The final weeks of December 2024 highlighted a notable shift in the mortgage landscape, marked by a substantial increase in interest rates that coincided with a traditionally sluggish period for the housing market. According to the Mortgage Bankers Association (MBA), mortgage application volumes experienced a sharp decline of 21.9% during the two-week period ending December 27, 2024. This downturn aligns with historical patterns, as the end of the year typically sees a slowdown in housing activity. However, this particular year presents a more complex scenario, with rising rates amplifying the seasonal drop-off.
During the specified timeframe, the average interest rate for 30-year fixed mortgages rose to 6.97%, a slight increase from the previous week’s 6.89%. Additionally, the points rose from 0.67 to 0.72, indicating that borrowers are not only facing higher rates but also increasing origination fees. A significant aspect to note is that this uptick in mortgage rates represents a 21 basis points elevation compared to the same period a year earlier, suggesting a reversal from 2024’s earlier trends where rates remained relatively lower.
As expectations built around these rate changes, MBA’s chief economist, Mike Fratantoni, acknowledged the predictable impact on housing activity. The concurrent rise in mortgage rates during a lethargic market period led to declines in both refinancing and home purchase applications.
Refinancing applications bore the brunt of rising rates, plunging 36% from the preceding two weeks. Although this represents a stark drop, it’s essential to highlight that the refinancing volume remains 10% above the same time last year, indicating that there is still some resilience in the market amidst these challenges. The composition of refinancing applications shifted, decreasing the share from 44.3% to 39.4% of total applications, revealing that costlier borrowing conditions are pushing many potential refinancers to rethink their strategies.
Mortgage applications for home purchases also faced hurdles, falling 13% week-over-week and reflecting a 17% drop year-over-year. Despite an increased inventory of homes on the market compared to the previous year, many listings have languished due to elevated prices coupled with soaring interest rates. The January data, particularly following the holiday season’s volatility, poses further uncertainty in future purchasing trends.
As we transition into the new year, the mortgage industry finds itself grappling with the lingering effects of rising interest rates. With reports indicating mortgage rates starting the new year above 7%, experts like Matthew Graham from Mortgage News Daily emphasize the unpredictable nature of the bond market and its influence on mortgage pricing.
Thus, while historical data shows a consistent seasonal decline in activity, the external factors at play in 2024 suggest a complex and potentially turbulent housing market ahead. Buyers and homeowners looking to refinance will need to navigate these heightened rates cautiously, balancing their financial goals against the prevailing economic conditions.