As the year draws to a close, the housing market typically slows down, a seasonal trend exacerbated by recent spikes in mortgage interest rates. Toward the end of December 2024, the Mortgage Bankers Association (MBA) reported a substantial decrease in mortgage application volume, which dropped by a staggering 21.9% compared to the preceding week. This decline coincides with the holiday period when activity generally diminishes. The MBA’s data, adjusted for seasonal variations, highlighted the severity of this downturn as potential homebuyers and those looking to refinance took a step back amid rising costs.
The uptick in the average contract interest rate for 30-year fixed-rate mortgages, which increased from 6.89% to 6.97%, played a pivotal role in deterring mortgage applications. With points related to origination fees also on the rise, this trend effectively made borrowing more expensive for consumers. Notably, mortgage rates appeared less favorable compared to the same period last year, presenting a 21 basis point increase. Economists like Mike Fratantoni, the MBA’s chief economist, highlighted the inevitable relationship between increasing rates and declining mortgage activity—both refinance and purchase applications saw marked decreases during this timeframe.
Refinance applications, which usually react most dramatically to changes in interest rates, witnessed a 36% drop during the last two weeks of December. Nevertheless, despite this plunge, refinance activity remained a surprising 10% higher than figures from the previous year. The share of refinancing in total mortgage applications fell from 44.3% to 39.4%, underscoring a shift in consumer behavior in the face of more prohibitive borrowing conditions. The allure of refinancing, which often offers homeowners the chance to lower monthly payments, diminished as rates climbed sharply.
In tandem with the drop in refinancing, applications for new mortgages to purchase homes also slackened, declining by 13% over the same two-week period and reflecting a 17% decrease compared to the previous year’s levels. The inventory of homes for sale, while larger than last year’s figures, is still hindered by elevated prices and the high mortgage rates, leaving many properties stagnant in the market. The typical seasonal slowdown coupled with lingering economic pressures has curtailed buyer enthusiasm significantly.
As the new year begins, reports indicate mortgage rates have surged past 7% for 30-year fixed loans. The housing market’s recovery appears uncertain, particularly given the volatility following mid-week holidays, which introduced significant fluctuations in the data. Mortgage News Daily’s Matthew Graham expressed concerns about the unpredictability of the bond market as it could affect interest rates further. As we move into 2025, stakeholders will be closely monitoring these trends to adapt to shifting economic landscapes and consumer sentiment, ultimately shaping the future of the housing market.
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