Homebuying Demand Ticks Up Despite Elevated Rates

With the election over and rates appearing to stabilize, more would-be buyers were looking at homes this past week.

Key points:

• The 30-year fixed rate mortgage averaged 6.78% in Freddie Mac’s latest survey, ending a streak of six consecutive increases.
• Even with two recent interest rate cuts, mortgage rates are staying elevated as analysts expect inflation to rise again.
• Home touring jumped in the week following the presidential election as some certainty returned to the market.

It’s becoming clear that any late-season uptick in home sales will have to reckon with elevated mortgage rates — but for the first time since late September, rates didn’t get any higher this week.

Mortgage rates were essentially flat in the latest Freddie Mac survey, averaging 6.78%. That’s down a hair from 6.79% last week, and snapping six consecutive weeks of increases. The 15-year fixed-rate mortgage also ticked down from 6% to 5.99%.

Rates could ‘modestly ease through 2025’

Mortgage rates have been trending higher despite two rate cuts from the Federal Reserve in September and November. That’s because the markets are anticipating fewer, or smaller, rate cuts due to strong economic data and rising inflation.

“Mortgage rates won’t decline significantly through the end of the year and into 2025 unless the Fed throws us a curveball, such as cutting rates even more than expected,” said Odeta Kushi, deputy chief economist at First American. “But, assuming the economy continues to show signs of normalization and inflation continues to moderate, rates will likely modestly ease through 2025, as the Fed continues with its rate-cutting cycle.”

Economic data from earlier this week showed inflation was rising again. The Consumer Price Index put inflation at 2.6%, with housing costs remaining an issue. While the Fed — which has a target of 2% inflation — uses a different measure, it shows that the home stretch can be a challenge when it comes to taming inflation, said Danielle Hale, chief economist at Realtor.com.

With inflation moving back up, the Fed could opt for “a rate pause in December rather than another cut,” Hale said. “For now, that means higher long-term rates, including mortgage rates.”

Some positive trends

For those looking for silver linings, there are a few: The presidential election was conclusive, providing some certainty for the markets. Also, inventory is at its highest level since December 2019, and nearly 20% of listings are offering price cuts, said Jiayi Xu, an economist at Realtor.com.

And even though rates remain elevated, demand rose after the election, according to Redfin’s demand index. The index, which measures home tours and other buying services, was up more than 15% based on data from the post-election weekend.

“There’s no question we saw homebuying demand bounce back this past weekend, but it’s bouncing back to the level we would expect with 7% mortgage rates and not much higher,” said Chen Zhao, Redfin’s economic research lead. 

“Buyers were waiting for the election to be over, and for the Fed to cut rates for the second month in a row. Both of those things happened last week, and now buyers don’t have much reason to wait — especially because we don’t expect rates to fall significantly anytime soon.”

Mortgage applications steady

Mortgage application volume eked out a small increase this week, according to the Mortgage Bankers Association. It was up 0.5% overall compared to a week ago, while the seasonal purchase index was up 2% for the same period.

The increase in applications was driven by a rise in FHA and VA loan applications, said Joel Kan, deputy chief economist at MBA.

“FHA mortgage rates bucked the overall trend and were lower over the week, which likely helped some borrowers,” Kan said.

Source: Real Estate News

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