Real State

Mortgage rates above 7% cloud the outlook for the housing market

The new year is upon us, but little has changed in terms of mortgage rates and their impact on the US housing market.

In HousingWire‘s Mortgage Rates Center on Tuesday, the 30-year fixed rate averaged 7.09%. That was up 2 basis points (bps) from the previous week. The 15-year fixed rate was slightly higher at 7.11% and rose 11 bps last week.

“The 10-year yield is currently close to my top forecast of 4.70%. However, mortgage rates have not reached my high forecast of 7.25% because mortgage spreads have improved at the beginning of the year,” said Logan Mohtashami, lead analyst for HousingWire. “If mortgage spreads were not as good as they were in 2023, mortgage rates would be around 8% instead of closer to 7%.

Mortgage rates have continued to rise since The Federal Reserve meeting on Dec. 18, where the central bank reduced the benchmark rate by 25 bps to a range of 4.25% to 4.5%. The Fed has used a total of 100 bps of tapering in its past three meetings, but mortgage rates haven’t kept pace. The 30-year fixed rate, for example, has risen 78 bps since the rate-cutting cycle began in mid-September.

Market watchers believe the cuts will be halted when the Fed meets again at the end of January. Tuesday, the The CME GroupThe FedWatch tool showed that 95% of interest rate traders predicted no rate cut this month. Looking ahead to March, 37% of traders believe there will be an additional 25-bps cut that will bring the federal funds rate down to a range of 4% to 4.25%.

The following employment report from US Bureau of Labor Statistics (BLS) will be released on Friday and should provide guidance to Fed policymakers ahead of their next meeting. A Reuters poll of economists called for 150,000 new jobs to be added in December, down from 227,000 in November.

Last week, the Labor Department reported an adjusted annual rate of 211,000 jobless claims — a lower-than-expected number that showed “the labor market is not breaking,” according to Mohtashami.

“For mortgage rates to come down, we need to focus on the labor market, which has been an important factor in every economic cycle in recent history, and especially the labor market for residential construction and remodeling,” Mohtashami wrote.

“The existing real estate market has been weak since June 16, 2022, and has not experienced significant sales growth for a long time. However, the labor market for those working in the existing real estate market is not strong enough to have an impact on the economy, as it is a commission oriented sector.”

There are no surprises in terms of home sales or new listings during the usually slow holiday season, he said Study of Altos President Mike Simonsen. Altos data showed a weekly average of 44,000 pending new sales in December, almost unchanged from the same period last year. Simonsen said he expects work to pick up next week.

“In ‘normal’ years, it will be early February before inventory hits its lowest point and begins to climb toward spring,” Simonsen wrote Monday. “While demand is hot during the crisis, the inventory may not reach its lowest level until March or April. At that time, we already had more buyers than sellers. That is not true now, so we should expect the inventory to start building in February 2025.”

Real estate professionals can take solace in the fact that home buyer sentiment is higher than last year. Survey data released on Tuesday is Fannie Mae it also showed that 42% of respondents expect mortgage rates to fall in the next 12 months, up from 31% a year ago.

“While respondents remain pessimistic about rising home prices and home prices during the pandemic, the uptick in homebuying sentiment in 2024 may reflect a slight adjustment to less-than-affordable market conditions,” said Fannie Mae economist Mark Palim. he commented.

Redfin data released this week showed positive signs for housing availability. The brokerage reported that the share of money needed to buy a median-priced home fell slightly last year – the first time since the start of the COVID-19 pandemic. Still, a family earning a median income of $83,782 would need to spend about 42% of their income to buy a home with a median price of $429,734, much higher than the typical share of 30% or less during the 2010s.

“For many Americans, buying a home remains more out of reach than ever and that won’t change anytime soon,” said Redfin senior economist Elijah de la Campa. “Even if property prices continue to rise, we still expect prices to continue to rise through 2025 due to a lack of real estate – forcing many potential homebuyers to rent.”


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