As mortgage rates continue to retreat from 2022 highs, all eyes will be on the Federal Reserve as policymakers conduct their final meeting of the year next week.
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Demand for purchase mortgages fell last week even as rates continued to retreat from 2022 highs, breaking a streak of four consecutive weeks of stronger homebuyer demand, according to a weekly survey by the Mortgage Bankers Association.
The MBA Weekly Mortgage Applications Survey showed demand for purchase loans was down a seasonally adjusted 3 percent last week compared to the week before, and 40 percent from a year ago. Applications to refinance were up 5 percent week over week but down 86 percent from a year ago.
Joel Kan
“Purchase activity slowed last week, with a drop in conventional purchase applications partially offset by an increase in FHA and USDA loan applications,” said MBA Deputy Chief Economist Joel Kan, in a statement. “The average loan size for purchase applications decreased to $387,300 – its lowest level since January 2021. The decrease was consistent with slightly stronger government applications and a rapidly cooling home-price environment.”
Requests for FHA loans accounted for 13.7 percent of all mortgage applications, up from 12.2 percent the week before. At 11.4 percent, the VA share of total applications was also up slightly from 11.2 percent the week before. Requests for USDA loans accounted for 0.6 percent of loan applications, up from 0.5 percent the week prior.
Mortgage rates retreat from 2022 highs
The Optimal Blue Mortgage Market Indices, which are updated daily, show that since hitting a 2022 high of 7.16 percent on Oct. 24, 30-year fixed-rate mortgages have fallen into the low sixes, to levels not seen since September.
For the week ending Dec. 2, the MBA reported average rates for the following types of loans:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 6.41 percent, down from 6.49 percent the week before. With points decreasing to 0.63 from 0.68 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased to 6.60 percent.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 6.08 percent, down from 6.35 percent the week before. With points decreasing to 0.5 from 0.61 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 6.23 percent.
- For 30-year fixed-rate FHA mortgages, rates averaged 6.39 percent, down from 6.57 percent the week before. With points decreasing to 0.93 from 1.14 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 6.66 percent.
- Rates for 15-year fixed-rate mortgages averaged 5.84 percent, down from 6.02 percent the week before. With points decreasing to 0.55 from 0.69 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 5.98 percent.
- For 5/1 adjustable-rate mortgages (ARMs), rates averaged 5.59 percent, up from 5.48 percent the week before. With points increasing to 0.91 from 0.89 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 5.93 percent.
All eyes will be on Federal Reserve policymakers next week, as they wrap up their final meeting of the year on Dec. 14.
At each of its last four meetings, the Fed raised the short-term federal funds rate by 75 basis points in an attempt to cool inflation. With some key indicators suggesting inflation is beginning to ease, Fed policymakers are expected to slow, but not halt, the pace of short-term rate hikes.
The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows traders pricing in a 78 percent chance of a smaller, 50-basis point increase in the federal funds rate next week.
But this year’s dramatic rise in mortgage rates and nervous consumers have set up the housing market for its “slowest fourth quarter in a decade,” according to NAR Chief Economist Lawrence Yun, with October pending home sales down 37 percent from a year ago. Would-be sellers pulled homes off the market at a record pace in November, according to data compiled by Redfin.
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FAQs
For much of 2023 and 2024, that margin grew to 3 percentage points, making mortgages more expensive. Mortgage rates also move due to: Inflation: Generally, when inflation picks up, so do fixed interest rates. Supply and demand: When mortgage lenders have too much business, they raise rates to decrease demand.
What happens when mortgage rates drop? ›
Lower rates would make new mortgage payments lower, but even then buyers shouldn't expect any drastic improvements in overall affordability-especially with home insurance costs on the rise. On a $500,000 loan, for example, a 6% rate would mean a monthly mortgage payment of $2,998.
What will mortgage rates drop to in 2024? ›
Yes, mortgage interest rates are expected to decrease gradually over the next couple of years. Experts predict the average 30-year rate will settle somewhere between 6.6% to 6.7% by the end of 2024, and then to 6% to 6.2% by late 2025.
Are mortgage rates expected to keep falling? ›
Mortgage rates are currently expected to continue trending down through 2024 and into 2025. The Mortgage Bankers Association thinks that 30-year mortgage rates could fall to 6% in 2025.
What happens to demand when interest rates fall? ›
Consequently, aggregate demand would be increased, with the AD curve shifting to the right, as consumers would have more disposable income. In addition, prices would increase due to the shift; leading to higher inflation rates.
Does lowering interest rates increase demand? ›
Lower interest rates encourage big purchases by consumers and expansion by businesses.
What happens if I lock in a mortgage rate and the rate goes down? ›
On the other hand, if you lock your rate and interest rates fall, you can't take advantage of the lower rate unless your rate lock includes a float-down option. A float-down option allows you to take advantage of an interest rate decrease during your rate lock period.
Will mortgage rates ever be 3% again? ›
Mortgage rate predictions
As you can see, both predict rates will drop over the coming year or two, but very gradually. Experts also don't expect any drastic dips in rates — say to 3% or 4%, as experienced during the height of the COVID-19 pandemic.
Will my mortgage go down if interest rates go down? ›
Your payments might go down if the base rate is reduced and go up if the rate increases. If you have a fixed-rate mortgage, your payments won't change until your fixed-rate period ends and you move to your lender's standard variable rate.
Will 2024 be a better time to buy a house? ›
Yes. This is the best time to buy a house in California. With the current trend in the CA housing market, you'll find better deals on your dream home during Q2 2024. As per Fannie Mae, mortgage rates may drop more in Q2 of 2024 due to economic changes, inflation, and central bank policy adjustments.
Prediction of Mortgage Rates for 2025
Here are some predictions for 2025 from key players and industry associations in the mortgage space: Fannie Mae: 6.1% Mortgage Bankers Association: 5.9% National Association of Home Builders: 6.01%
What is the mortgage rate forecast for the next 5 years? ›
“Mortgage rates are likely to continue easing over the next few months, and likely end the year around 6.5% and be in the 6-6.5% range throughout 2025,” Sunbury tells Forbes Advisor, anticipating rates making their way down to the 5.5% to 6% range in late of 2025, and then remaining roughly in that range for the longer ...
Should I lock my mortgage rate today? ›
It depends on you, the markets and your financial situation. Some people are more comfortable locking in early on, while others prefer to gamble on fluctuations. One sensible rule of thumb is to lock in your rate when there's a scenario that works within your needs and budget.
Will mortgage rates go down if market crashes? ›
In summary though, stock market crashes tend to be good for the mortgage industry overall, as they result in lower rates and an immediate upswing in refis.
What is a good mortgage rate? ›
As of Aug. 5, 2024, the average 30-year fixed mortgage rate is 6.35%, 20-year fixed mortgage rate is 6.07%, 15-year fixed mortgage rate is 5.42%, and 10-year fixed mortgage rate is 5.36%. Average rates for other loan types include 6.18% for an FHA 30-year fixed mortgage and 6.67% for a jumbo 30-year fixed mortgage.
Does demand for money increase interest rates? ›
Economists call this the speculative demand for money. Since cash and most checking accounts don't pay much interest, but bonds do, money demand varies negatively with interest rates. That means the demand for money goes down when interest rates rise, and it goes up when interest rates fall.
What happens when demand for loans increases? ›
Changes in the demand for loanable funds
That means the demand for loanable funds will increase, which leads to a higher real interest rate. In other words, we would expect to see an increase in real interest rates, and the quantity of loans made, when the economy is doing well.
How does real interest rate affect demand? ›
A decrease in interest rates makes assets in this country less attractive to investors from other countries. Demand for these assets decreases, which means other countries will need less of this country's currency to buy its assets, so the demand for this country's currency decreases.
How does demand affect the housing market? ›
Key Takeaways
The housing market is a good example of how supply and demand works within an industry. When the demand for housing is high, but supply is low, home prices often rise. When there is a glut of housing available in a market, homeowners may lower their prices due to less demand in the market.
