December jobs data is expected to cool, but how will Fed officials respond at their next meeting?
The new year has arrived, but little has changed regarding the direction of mortgage rates and their impact on the U.S. housing market.
At HousingWire’s Mortgage Rates Center on Tuesday, the 30-year fixed rate averaged 7.09%. That was up 2 basis points (bps) from a week ago. The 15-year fixed rate was slightly higher at 7.11% and was up 11 bps in the past week.
“The 10-year yield is currently close to my peak forecast of 4.70%. However, mortgage rates have not reached my peak prediction of 7.25% because mortgage spreads have improved in the early part of the year,” HousingWire Lead Analyst Logan Mohtashami wrote. “If mortgage spreads had been as unfavorable as they were in 2023, mortgage rates would be around 8% instead of near 7%.”
Mortgage rates have continued to rise since the Federal Reserve meeting on Dec. 18, when the central bank cut benchmark rates by 25 bps to a range of 4.25% to 4.5%. The Fed has implemented a total of 100 bps in cuts over its past three meetings, but mortgage rates have not moved in tandem. The 30-year fixed rate, for instance, has jumped by 78 bps since the rate-cutting cycle began in mid-September.
Market observers believe that the cuts will be paused when the Fed meets again at the end of January. On Tuesday, the CME Group’s FedWatch tool showed that 95% of interest rate traders predict no cut this month. Looking ahead to March, 37% of traders believe there will be an additional 25-bps cut that would lower the federal funds rate to a range of 4% to 4.25%.
The next employment report from the U.S. Bureau of Labor Statistics (BLS) will be released Friday and should provide some direction to Fed policymakers before their next meeting. A Reuters poll of economists calls for 150,000 new jobs to be added in December, down from a figure of 227,000 in November.
Last week, the labor department reported a seasonally adjusted annual rate of 211,000 unemployment claims — a lower-than-expected figure which signaled that “the labor market isn’t breaking,” according to Mohtashami.
“For mortgage rates to go lower, we need to focus on the labor market, which has been critical to every economic cycle in recent history, and particularly the labor market for residential construction and remodeling,” Mohtashami wrote.
“The existing home sales market has been in a recession since June 16, 2022, and hasn’t experienced any significant growth in sales for some time. However, the labor market for those working in in the existing home sales market isn’t substantial enough to impact an economy, since it is a sector that revolves around a transfer of commission.”
There weren’t any surprises in regard to home sales or new listings during the typically slow holiday season, according to Altos Research President Mike Simonsen. Altos data showed a weekly average of 44,000 new pending sales in December, nearly unchanged from the same period last year. Simonsen said he expects activity to rise next week.
“In ‘normal’ years, it’d be early February before inventory hits the absolute low point and starts climbing for the spring,” Simonsen wrote Monday. “When demand was hot during the pandemic, inventory might not reach its low point until March or April. In those times, we just had far more buyers than sellers. That’s not true now, so we should expect inventory to begin building for the year in February 2025.”
Mortgage and real estate professionals may take solace in the fact that homebuyer sentiment is considerably higher than it was a year ago. Survey data released Tuesday by Fannie Mae also showed that 42% of respondents expect mortgage rates to decline in the next 12 months, up from 31% one year ago.
“While respondents remain discouraged by the pandemic-era run-up in home prices and mortgage rates, the upward trend in home buying sentiment in 2024 may reflect a slow acclimatization to the generally less-affordable market conditions,” Fannie Mae chief economist Mark Palim remarked.
Redfin data released this week showed some positive signs for housing affordability. The brokerage reported that the share of income needed to buy the median-priced home fell slightly last year — the first time since the start of the COVID-19 pandemic that had happened. Still, a household earning the median income of $83,782 would need to spend nearly 42% of their paycheck to afford the median-priced home 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’s unlikely to change anytime soon,” Redfin senior economist Elijah de la Campa said. “Even with inventory trending upwards, we still expect prices to continue rising in 2025 due to a lack of homes for sale — pushing more would-be homebuyers to rent instead.”
Read more at Housingwire
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