Mortgage Demand Plummets 21.9% as Year-End Rates Surge, Hitting Housing Market During Slow Season

The housing market experienced a sharp decline in mortgage demand towards the end of December 2024 due to a significant increase in mortgage interest rates. This surge in rates coincided with the traditional slowdown in the housing market during the year-end period.

Decline in Mortgage Applications

According to the Mortgage Bankers Association (MBA), total mortgage application volume for the two weeks ending December 27, 2024, saw a substantial drop of 21.9% compared to the preceding week, based on the seasonally adjusted index. The MBA released two weeks of data after being closed during the holiday season, with an additional adjustment made to account for the Christmas holiday.

Increase in Mortgage Rates

During this period, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less rose to 6.97%, up from 6.89%. The points also increased to 0.72 from 0.67, including the origination fee, for loans with a 20% down payment. Notably, mortgage rates, which had been lower than the previous year for a significant part of 2024, were found to be 21 basis points higher on an annual basis.

Mike Fratantoni, chief economist at the MBA, remarked that mortgage rates reached almost 7% for 30-year fixed-rate loans during the last full week of 2024, which led to declines in both refinance and purchase applications. Applications to refinance a home loan, being the most sensitive to interest rate fluctuations, experienced a notable decrease of 36% compared to the two weeks before. However, they remained 10% higher than the same period the previous year. The refinance share of total mortgage activity declined to 39.4% from 44.3% the previous week.

Decline in Home Purchase Applications

Applications for mortgages to purchase a home fell by 13% during the two weeks in question, marking a 17% decline compared to the same period the previous year. While December is generally the slowest month for home sales, the significant decrease in mortgage applications indicates a considerable weakness in the housing market, as these numbers are seasonally adjusted.

Current Mortgage Rates and Volatility

As the new year began, mortgage rates were reported to be above 7% for 30-year fixed-rate loans, according to a separate survey by Mortgage News Daily. The timing of the holidays falling midweek contributed to the observed volatility in all these numbers. Matthew Graham, chief operating officer at Mortgage News Daily, noted the unpredictability in the bond market at the start of the new year, attributing it to various factors that can cause excess volatility unrelated to typical economic motivations.