High Mortgage Rates Impact Housing Market Outlook
As the new year unfolds, the path of mortgage rates and its influence on the housing market stands strong. At HousingWire’s Mortgage Rates Center, the 30-year fixed rate averages 7.09%, a rise of 2 basis points since last week. Similarly, the 15-year fixed rate ticked up to 7.11%, an increase of 11 bps in the past week. Despite the 10-year yield nearing its estimated peak and the Federal Reserve cutting benchmark rates, mortgage rates have not yet attained those peak predictions. There’s a silver lining in the improved mortgage spreads in early January that are keeping mortgage rates below the projected 7.25%, for now.
Following the Federal Reserve’s decisions to slash rates, there’s been a notable spike in mortgage rates. The Fed is expected to pause the cuts at their upcoming January meeting, based on predictions from the CME Group’s FedWatch tool, which shows a 95% certainty among interest rate traders. Looking ahead to March, about 37% of traders anticipate an additional 25-bps cut from the Fed, settling the federal funds rate within a range of 4% to 4.25%.
Market predictions rely heavily on the upcoming U.S. Bureau of Labor Statistics employment report this week, set to guide Fed policymakers in their upcoming meetings. While December’s job report may see a decline compared to November, experts emphasize the importance of the labor market in influencing mortgage rates. The labor market powers economic cycles, especially in the residential construction and remodeling sectors, and any growth in this market is a promising indicator.
Despite slow activity in home sales and new listings during the holidays, there’s a general expectation of a rise in housing market activity soon. Typically, inventory is low until early February when it starts to climb, aiming for spring growth. The sentiment among homebuyers is on the rise across several sectors. A considerable number of survey participants anticipate a decline in mortgage rates over the next year, marking a shift from expectations a year ago.
The recently released Redfin data indicates positive signs regarding housing affordability trends, with a slight decrease in the required share of income for the median-priced home. Even so, buying a home remains a challenge for many, mainly due to the ongoing scarcity of available homes for sale. Affordability remains an ongoing concern, with prices expected to continue rising in 2025. This may encourage more potential homebuyers to choose renting over buying a home for the time being.
