Mortgage rates increased for the second week just as many homebuyers are warming up to the market.
The average rate for 30-year fixed mortgage loans rose to 6.66% from 6.62% a week prior, according to Freddie Mac on Thursday. While mortgage rates began trending downward at the end of 2023, strong economic data and December’s hotter-than-expected Consumer Price Index (CPI) complicated the general expectation of moderating inflation.
Returning homebuyers, encouraged by rates falling fast in December, have now seen borrowing costs increase for two weeks. But even with the Fed’s restrictive policies, experts consider this curveball could be market fluctuation as rates are still expected to fall further this year.
“Mortgage rates fell each week in December, dipping below 7% before the start of the new year,” Jiayi Xu, Realtor.com’s economist, said before the official rates were released on Thursday. “While there could be some fluctuations in the path forward, as we observed at the beginning of the new year, the general expectation is that mortgage rates will continue to trend downward as long as the economy continues to see progress on inflation.”
Read more: 5 strategies to get the lowest mortgage rates in 2024
Rise in mortgage applications
Homebuying activity surged during the first week of 2024. Mortgage application activity increased 9.9% from a week prior, according to Mortgage Bankers Association (MBA) data ending on Jan. 5.
On a seasonally adjusted basis, purchase applications jumped 6% compared to a week prior, although they remain 16% lower than the same week a year ago. Holiday-adjusted refinance activity increased 19% from the week before and was 30% higher than the same week one year ago.
“Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday,” Joel Kan, MBA’s vice president and deputy chief economist, said in a press release. “The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines.”
Improved homebuyers’ sentiment in recent data echoes the rise in mortgage applications. Housing confidence climbed 2.9 points to 67.2 in December, Fannie Mae’s monthly Home Purchase Sentiment Index (HPSI) reported. In the survey, 17% of respondents say it’s a good time to buy, an increase of five percentage points from the previous month.
Read more: How to buy a house: 13 steps to getting the keys to your new home
“This significant shift in consumer expectations comes on the heels of the recent bond market rally and an already significant downtick in 30-year mortgage rates, from their high of nearly 8% in early November,” said Mark Palim, vice president and deputy chief economist at Fannie Mae.
The index uplift can be attributed to many more Americans believing that mortgage rates will soften in the coming year. In the December data, a survey-high proportion — 31% — of respondents expect mortgage rates to drop within the next 12 months.
“For the first time in our National Housing Survey’s history, more homeowners, on net, believe mortgage rates will go down than go up,” Palim said.
However, one expert warned that rate cuts are not guaranteed. In fact, any cuts heavily depend on the broader economic outlook.
“The latest economic data has been stronger than expected, meaning fewer policy rate cuts than previously thought could be in the cards for 2024,” said Orphe Divounguy, senior macroeconomist at Zillow home loans.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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