The US housing market faced a renewed chill as the year drew to a close, with mortgage rates reaching their highest levels since early July during the Christmas holiday week.
This surge in borrowing costs has significantly weakened demand, sending home purchase applications tumbling and nearly collapsing the refinance market.
A sharp climb in borrowing costs
Data released by the Mortgage Bankers Association (MBA) on Thursday revealed that the contract rate for a 30-year mortgage climbed a substantial 8 basis points to 6.97% for the week ending December 27th.
This followed a sharp 14 basis point increase the previous week, marking a significant escalation in home financing costs.
The rapid climb in interest rates is attributed to the rise in Treasury yields, which themselves are a result of the Federal Reserve’s projection of a more moderate pace of interest rate cuts in 2025, fueled by persistent inflation.
According to Mortgage News Daily, which offers more frequent updates on home financing, the 30-year fixed rate had already reached 7.07% by Tuesday of that week.
Demand takes a nosedive
The impact of these escalating rates was immediately evident.
The MBA’s index tracking home purchase applications plummeted by nearly 7%, reaching its lowest point since mid-November.
Simultaneously, the refinancing index experienced an even more dramatic drop, slumping by more than 23% to hit a one-year low.
While these figures are seasonally adjusted, the volatility surrounding the year-end holidays underscores the fragility of the market in the face of these cost increases.
A silver lining amidst the gloom?
Despite the recent rate hikes, there appears to be a degree of acceptance of higher rates among some buyers, perhaps signaling a shift in market psychology.
Data from the National Association of Realtors, published separately, showed that in November, when rates averaged around 6.8%, contract signings for the purchase of previously owned homes reached their highest level since February 2023.
This suggests a potential resilience in the face of fluctuating interest rates.
The underlying data: a look at the numbers
The MBA survey, a fixture in the market since 1990, draws its data from responses provided by a diverse group of mortgage lenders including mortgage bankers, commercial banks, and thrifts.
The survey is a comprehensive indicator of market trends, covering over 75% of all retail residential mortgage applications in the United States, making it a reliable gauge of the current state of the housing market.
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