As the end of December 2024 approached, a surge in mortgage interest rates had a pronounced impact on mortgage demand. According to the Mortgage Bankers Association (MBA), the total volume of mortgage applications plummeted by 21.9% in the last two weeks of December compared to the prior week. This decline coincided with the holiday season, which is inherently a quieter period in the housing market. The MBA adjusted its figures to address holiday-related variances, revealing a stark contrast to earlier months of the year.
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.97%, up from 6.89% before the holidays. Additionally, points rose to 0.72 from 0.67 for loans requiring a 20% down payment. Notably, despite rates trending lower for much of 2024, they remained 21 basis points higher than the same time last year.
Inflationary pressures have seen mortgage rates inch closer to the 7% mark, with MBA’s chief economist, Mike Fratantoni, emphasizing that this aggressive rise in rates had significant repercussions for housing activity during a time when market momentum typically wanes. The uptick was particularly detrimental for refinancing applications, which are highly responsive to interest rate fluctuations. The MBA’s data reflected a startling 36% decrease in refinancing applications when measured against the previous two-week period, although they did present a 10% increase year on year.
Moreover, the share of refinancing in the overall mortgage activity shrank to 39.4%, down from the previous week’s 44.3%. Applications for new home purchase mortgages fared no better, seeing a 13% decline over the two-week span, and a 17% drop compared to the same period in the previous year.
December, historically the least active month for home sales, showcased noteworthy challenges in the current market landscape. Despite an increase in the number of homes available compared to the previous year, many properties are stagnating on the market. Prospective buyers are often deterred by elevated prices coupled with the financial burden of higher interest rates. Current mortgage rates have surpassed the 7% threshold, as indicated by another survey conducted by Mortgage News Daily, casting a shadow over housing activity as the new year begins.
Matthew Graham, from Mortgage News Daily, highlighted the unpredictability of the bond market, suggesting that volatility could continue in the incoming weeks. This uncertainty encapsulates the broader concerns confronting potential homebuyers, who are faced with a myriad of challenges, from rising interest rates to static property prices.
Looking Ahead: What Lies in Store for the Housing Market?
As we move further into 2025, the ramifications of these rising rates and shifting market dynamics are expected to manifest more clearly. Real estate professionals, potential homebuyers, and investors alike would do well to stay attuned to economic indicators and forecasts. While the holiday-related slowdowns experienced in December may offer some respite in terms of volatility, the underlying trends suggest that the combination of high interest rates and ongoing economic pressures will continue to present formidable challenges to mortgage demand in the early months of the year.