Small drop in mortgage rates a good sign for December

If housing industry professionals are looking for an early Christmas gift, they might receive it in the next two weeks if key economic indicators move in the right direction.

At HousingWire’s Mortgage Rates Center on Tuesday, the 30-year conforming rate averaged 6.98%. That was down 4 basis points (bps) from a week ago and the first weekly decline since rates began to climb in early October. Meanwhile, the 15-year conforming rate continued to rise, up 14 bps over the past week to 7.12%.

The Federal Reserve will hold its next meeting in two weeks and the consensus from interest rate traders is that policymakers will lower the federal funds rate by another 25 bps. That would be the third straight meeting with a decrease, following a pullback of 50 bps in September and 25 bps in November. But market observers believe another cut isn’t likely to have much influence on mortgage rates.

“While mortgage rates have remained mostly unchanged from last week’s levels, we have improved from the highs of November, which could be partially attributed to an increase in dealer demand this month for mortgage bonds,” said Afifa Saburi, a capital markets analyst at Veterans United Home Loans. “If this continues, we could see further improvements in mortgage rates, but any improvement is likely to be marginal as many uncertainties around the market outlook remain.”

The U.S. Bureau of Labor Statistics will release its jobs report for November on Friday. Economists expect the number of new jobs created last month to be in the neighborhood of 200,000. This would represent a return to normal levels for much of 2024. Employers added 254,000 jobs in September, but that number shrank to 12,000 in October.

A weaker-than-anticipated jobs print could lead the Fed to maintain or accelerate its pattern of rate cuts. Conversely, outsized job growth — combined with the policy plans of president-elect Donald Trump — could renew fears of inflation and push the Fed to put the brakes on a cut this month.

“In addition to data, there are several Federal Reserve members speaking this week, which could impact the market sentiment on what the Fed will do in December,” Saburi said in a statement. “Late last week, the market repositioned, pricing in a higher chance of a 25 bps rate cut for December, which helped U.S. bonds and trickled over to mortgage rates.”

While the upward movement of mortgage rates has kept borrower demand in check, data from Altos Research shows that homebuyer activity is largely positive when compared to each of the past two years. Pending home sales, for instance, were up 7% year over year last week. And the purchase loan application index from the Mortgage Bankers Association has moved higher in four of the past seven weeks — including a 12% spike ahead of the Thanksgiving holiday.

Mat Ishbia, president and CEO of United Wholesale Mortgage (UWM), said in a video post on YouTube this week that current borrowers are focused on where rates are today in relation to when they bought their home. Refinance demand could jump once again — just as it did in September and October — if rates fall by 50 to 75 bps.

Ishbia referenced a recent TransUnion survey in which 80% of respondents said they were likely to refinance their mortgage in the next 12 months.

“Everyone is talking about the Fed cutting rates. Consumers are calling. And this survey locks in the fact that people are going to refinance regardless if rates go down to 4% or 5%,” Ishbia said.