It’s been a rough ride for mortgage rates this year. The 30-year fixed in 2024 at around 6.625% and is currently not far from those levels.
Despite that, rates have been down around 6% and up around 7.25%. So there has been quite a distance in the last 50 weeks or so.
Rates rallied last December after the Fed signaled it was ready to rotate and begin easing monetary policy.
But as always, prices ebb and flow along the way, instead of just ebbing and falling, in the last few months they’ve been very high.
However, we remain in a downward trend, even if prices are not yet at their bottom in 2024. Allow me to explain.
Real Estate Rates Better Than Last Year’s Levels
Many factors, including home prices and mortgage rates, are measured both monthly and annually.
The latter can give you a big picture of where trends are, whether it’s home prices or mortgage rates.
For example, home prices may decrease month-to-month, but still register year-over-year gains due to strong months on the road.
When it comes to mortgage rates, I have argued since mid-September that we are living in a falling rate zone.
Why was it necessary? Because 30-year fixed rates rose from about 6% to 7% in less than two months.
This caused many to react very badly. That the recent improvement in standards was another falsehood. And a return to 8% or more was imminent.
After all, we have seen this film before, most recently in the spring of this year, when the 30-year fixed rate rose from 6.5% to 7.5%.
But my argument has always been that we have seen the lows and highs. So first it was 8%, then 7.5%, and recently 7%.
In addition, mortgage rates have been improving their levels over the past year, reflecting a long-term trend as opposed to some short-term noise.
But They Will Need To Continue Down Because Of The Recent Uptick
To recap the past few months, the Fed cut rates in mid-September, which led to a slight selloff in rates.
Simply put, the reduction was baked in as evidenced by prices falling by nearly two percent from October 2023.
Then we got the one-time hot jobs report that drove up mortgage rates, followed by the presidential election.
Once it became clear that Trump was the front-runner to win, prices rose sharply, as his policies such as taxes were expected to rise.
But eventually that massive growth in rates fizzled out and it seemed like they were back on their downward path.
Finally, economic data is key and continues to show cooling inflation and some concern about rising unemployment.
That brought mortgage rates back from 7.125% to around 6.75% again. The big question now is whether they can continue to go down.
As shown in the chart above from MND, the 30-year average fell as early as December 2023 when the Fed said it was hiking and ready to cut rates in 2024.
That would have required the 30-year fixed rate to fall below 6.82% to surpass last year’s levels, which it failed to do thanks to another soft labor report last Friday.
It now faces an even bigger test as the 30-year fixed rate was 6.65% in mid-December 2023, which means we’ll need to see rates improve significantly in the coming week to match/exceed those levels.
Of course, it doesn’t have to be perfect.
Could Mortgage Rates Return to Sub-6% in February?
Although the prices seem to be trending in the right direction after the election lull, they still have to work to do it.
In order to stay below last year’s levels, they would need to drop another 10 points next week, which seems reasonable.
But to reach the top level in 2025, they will need to continue to show improvement and enter the top 5, considering that we saw an average of 6.125% earlier this year.
They have time to do that, but mortgage rates tend to be much lower in the winter, so it will probably happen sooner rather than later.
The last time the 30-year fixed was actually below 6% was on February 2, 2023, when it reached 5.99%, per MND. They were very short-lived, and prices jumped as much as 7% that same March.
However, prices are likely to continue to drift that way into 2025, split between some improvements this month and in January.
And it’s not really a big ask when you consider that the 30-year fixed rate was 6.125% in mid-September. Also note that rates tend to decline several years after the Fed’s pivot.
In contrast, the high risk of rising loan rates in the short term, without any solid economic data such as inflation or declining unemployment, would be noise related to the establishment.
There has been a bit of a lull lately, but as that day slowly approaches, government spending and inflation talks may pick up again in early 2025.
Still, I wouldn’t be surprised to see mortgage rates continue to decline through 2025 and stay in a downward spiral.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
Source link
