Fed action not enough to keep mortgage rates from surging
Despite a 25-point cut by the central bank, rates rose for a sixth straight week while applications fell sharply.
Key points:
- The Federal Reserve stuck with its game plan at its November meeting, cutting interest rates by 25 basis points.
- The 30-year fixed-rate mortgage continued to rise, however, averaging 6.79% this week.
- Mortgage applications slowed as homebuyer demand diminished.
Despite another rate cut from the Federal Reserve, the housing market may be dealing with elevated mortgage rates for the rest of this year and into 2025.
The Fed pulled no surprises two days after the presidential election, sticking with a 25-basis point cut as expected. In a statement explaining its decision, the committee noted that labor market conditions have softened and the unemployment rate has moved up but remains low.
In a press conference, Fed Chairman Jerome Powell said that in the near term, the results of the presidential election will have no effect on changes to fiscal policies.
"We don't know what the timing and substance of any policy changes will be," Powell said, referring to any action the new administration and Congress will take in January. "We don't guess, we don't speculate and we don't assume."
Two back-to-back rate cuts — September's 50-point cut followed by today's 25-point cut — could be enough to move the needle on mortgage rates, said Samir Dedhia, CEO of One Real Mortgage.
"Although one rate cut may have a limited effect, consecutive cuts could improve affordability and drive more market activity, particularly if the Federal Reserve indicates a commitment to maintaining lower rates over a longer period," Dedhia said.
A bumpy ride for the mortgage market
Meanwhile, mortgage rates remain volatile. The weekly Freddie Mac survey put the 30-year fixed-rate mortgage 6.79%, up from 6.72% the week before, marking the sixth consecutive weekly increase. Rates began rising on Sept. 26, when they reached their 2024 low of 6.08%.
This surge has had a dramatic effect on mortgage payments, which have now risen $200 a month for a typical mortgage on a $400,000 home, said Lisa Sturtevant, chief economist at Bright MLS.
But Mortgage News Daily suggests rates may have peaked for the moment. The site, which uses a different set of metrics to determine the average daily rate, noted a significant drop from a multi-month high of 7.13% on Nov. 6 to 6.98% on Nov. 7.
Sturtevant expects continued volatility in the coming weeks but forecasts rates in the low- to mid-6% range by the end of the year.
"Looking ahead to 2025, mortgage rates will likely continue to come down, assuming no major inflationary pressures, though it is possible to see the average rate on a 30-year fixed rate mortgage remain above 6% through most of 2025," Sturtevant said.
Buyers hit the brakes on tours, applications
Potential homebuyers appeared to press pause in the days leading up to the presidential election. Redfin's most recent demand index — which includes metrics like home tours — dropped to its lowest level in six weeks.
"Buyers have been jittery the last few weeks because of the election. Most of the buyers I'm meeting are looking at a house or two, then telling me they'll be back in the new year," said Corey Stambaugh, a Redfin Premier agent in Charlotte, in the Redfin report.
Mortgage applications also continued to slow due to a combination of rising rates and seasonality. Overall applications dropped 10.8% this week while purchase applications were down 7%, according to the Mortgage Bankers Association. It's the sixth consecutive week of slowing application activity.
While new inventory is drying up as the holiday season approaches, supply continues to rise. Redfin estimates months of supply at four, which is approaching a balanced market. Active listings are up 12.3% compared to a year ago but remain well below pre-pandemic levels.