In a twist of fate for eager homebuyers, mortgage rates experienced a second consecutive weekly rise just as many were gearing up for a foray into the housing market. The 30-year fixed mortgage loan average climbed to 6.66%, up from the previous week’s 6.62%, as reported by Freddie Mac on Thursday. Despite the recent rise in mortgage rates, industry experts suggest that this might be a temporary market fluctuation, with overall expectations pointing toward a continued downward trajectory throughout the year.
While the tail end of 2023 witnessed a decline in mortgage rates, the scenario took an unexpected turn due to robust economic indicators and the higher-than-anticipated Consumer Price Index (CPI) in December, complicating the prevailing assumption of inflation moderation.
Encouraged by the swift fall in rates during December, returning homebuyers are now grappling with rising borrowing costs for the second consecutive week. Despite the Federal Reserve’s restrictive policies, analysts remain optimistic, emphasizing that these fluctuations might be short-lived as rates are anticipated to decrease further in the coming months.
Jiayi Xu, Economist at Realtor.com, noted, “Mortgage rates fell each week in December, dipping below 7% before the start of the new year. 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.”
The first week of 2024 witnessed a surge in homebuying activity, with mortgage application activity increasing by 9.9% compared to the previous week, according to data from the Mortgage Bankers Association (MBA) ending on Jan. 5.
On a seasonally adjusted basis, purchase applications saw a 6% jump from the previous week, though they remain 16% lower than the same week in the previous year. Refinance activity, adjusted for holidays, soared by 19% from the preceding week and marked a substantial 30% increase compared to the same period last year.
Joel Kan, Vice President and Deputy Chief Economist at MBA, commented, “Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday. 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.”
The positive momentum in homebuyers’ sentiment aligns with the uptick in mortgage applications. Fannie Mae’s monthly Home Purchase Sentiment Index (HPSI) reported a 2.9-point increase to 67.2 in December. Notably, 17% of survey respondents expressed that it’s a favorable time to buy, marking a five-percentage-point increase from the previous month.
Mark Palim, Vice President and Deputy Chief Economist at Fannie Mae, attributed this shift in consumer expectations to the recent bond market rally and the substantial decline in 30-year mortgage rates from their peak of nearly 8% in early November.
The surge in the index can be attributed to a growing belief among Americans that mortgage rates will soften in the upcoming year, with a survey-high 31% of respondents expecting a drop within the next 12 months.
However, amidst the optimism, one expert sounded a note of caution, emphasizing that rate cuts are not guaranteed and hinge heavily 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,” warned Orphe Divounguy, Senior Macroeconomist at Zillow Home Loans.
Source: Yahoo Finance
