Mortgage Rates Surge to Near Six-Month High, Dampening Homebuying Activity
The US housing market felt the chill of rising mortgage rates during the Christmas holiday week, as applications for home purchases and refinancing activity took a hit. According to the Mortgage Bankers Association, the contract rate on a 30-year mortgage jumped 8 basis points to 6.97% in the period ended December 27, following a 14-basis-point increase the previous week.
Higher Rates Weigh on Homebuyers
The MBA’s index of home-purchase applications plummeted nearly 7% to its lowest level since mid-November, while the refinancing gauge slumped more than 23% to a one-year low. Although the figures are adjusted for seasonal effects, they are still susceptible to significant fluctuations around the year-end holidays.
Treasury Yields Drive Mortgage Rates Higher
Mortgage rates closely track Treasury yields, which continued to climb in late December. This was largely driven by Federal Reserve policymakers’ projection of a slower pace of interest-rate cuts in 2025, amid concerns over sticky inflation. In fact, Mortgage News Daily reported the 30-year fixed rate at 7.07% on Tuesday.
Homebuyers Adapting to Higher Rate Environment
Despite the end-of-year surge in mortgage rates, data from the National Association of Realtors suggests that prospective homebuyers are becoming more accustomed to a higher rate environment. In November, when rates averaged around 6.8%, a gauge of contract signings for purchases of previously owned homes reached its highest level since February 2023.
MBA Survey Provides Comprehensive Insights
The MBA survey, which has been conducted weekly since 1990, gathers responses from mortgage bankers, commercial banks, and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US, providing a comprehensive picture of the housing market.
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