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Mortgage and Real Estate News For Thursday December 26th, 2024
In the mortgage circuit, there have been drastic changes along with fluctuations in the real estate market, all affected by the economic policies that have increased bond yields. As for the current state of the economy, it can be summarized as follows:
Rates on Mortgages
30-Year Fixed-Rate Mortgages:
- Average rates have soared to 6.85%.
- This is the highest increase since July, when they climbed from 6.72% to 6.85%, compared to last week’s and the six-point sixty-one percent a year ago.
15-Year Fixed-Rate Mortgages:
- Instead of 5.92% in the previous week, the rates have spiked to 6.00%.
Housing Market Information
House Prices:
- High price rates combined with even higher mortgage rates have made it nearly impossible for almost all potential buyers to stimulate any chances of homeownership, further supporting the continuing downturn of the housing market.
Inventory Trials:
- Taking November into account, the last reported figure regarding the total number of houses available for sale was 1.37 million, showing a 19.1% increase year after year.
The Following influences the Rate Increase On Mortgages
- Generally speaking, mortgage rates and bond yields display a very tight relationship.
- An increase in bond yields leads to many factors, including an increase in mortgage rates.
Expectations Regarding Inflation
As we all know, inflation is bad news for every industry. It pushes investors to seek larger returns on long-term investments, which increases bond rates.
Policies By The Federal Reserve Bank
Although the Reserve recently cut some rates to facilitate purchasing, mortgage rates have paradoxically skyrocketed instead.
These factors account for the divergence we have seen, and it seems justified in view of rising yields on 10-year Treasury Bonds, which are considered a significant determinant of mortgage rates.
Government Debt Levels
Increasing fiscal deficits enhance the volume of government bonds, causing yields to increase to attract buyers.
Economic Policies
Policy shifts, such as instituting tariffs and tax reductions, could increase economic activity, raise inflation, add to government borrowing, and consequently raise mortgage rates.
Aspects That Influence Homebuyers and the Real Estate Economic Activity & Development:
Challenges on Affordability: Rising mortgage rates and current home prices have generally limited the number of prospective buyers, and mortgage applications have been sluggish.
Market Activity:
- Interest rates have suppressed buyer interest. A slight reduction in interest rates is likely to stimulate some business growth.
- Still, the business environment will remain restrained due to the relatively high prices and low volume of housing available.
The movement in 10-year Treasury yields and mortgage bonds highlights the intricate web of factors that characterize the current economy. These indicators and trends are critical for home buyers or borrowers intending to refinance their homes. Therefore, such transactions should be undertaken only after due consultation with advisers.
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American homebuyers, brace yourselves, as the February 2024 mortgage trends report suggests that mortgage rates are expected to rise drastically! Read on to understand the report, its details, and the specifics regarding current mortgage rates and their contributing factors.
What Are the Current Mortgage Rates for 2024?
According to the February report, mortgage rates have risen by a whopping 0.13% since the last update, with the 30-year fixed mortgage rate now being about 6.85% whores this highest record in July 2024.
The 15-year fixed mortgage has also noticeably risen in value, reaching 6.00%. However, these two are not the only noticeable rates. Here is some more data:
- 30-Year Fixed-Rate Refinance: 7.04%.
- 15-Year Fixed-Rate Refinance: 6.30%.
Why Are Mortgage Rates Rising?
Higher Bond Yields:
- Predictably, the surge in bond yields has an inverse relationship with mortgage rates.
- This is evident by the rise in the yield of the US 10-year Treasury, which has simultaneously caused inflation to rise.
- This drastic shift in yield from September until now stands at 4.61%, as opposed to less than 3.7%.
Federal Reserve Policy
- The Federal Reserve’s planning committee met earlier.
- Chair Jerome Powell commented that only two cuts are planned for the federal funds rate in 2025.
- This is a reduction in the cuts planned earlier.
- As a result, mortgage rates are predicted to be elevated for a while now.
Economic Conditions
The economic backdrop, which includes inflation, national debt, and many other factors, is also an important determinant of mortgage rates. Higher inflation means higher rates will be charged, as lenders will have to cut their margins, raising the inflation further.
Housing Market Dynamics
High mortgage rates and ever-accelerating home prices across the country make it difficult for many willing sellers to become homeowners, let alone buyers. As a result, the housing market is in a recession and is heading towards its sharpest fall since 1995, as recent data show.
With bond yields escalating, the Federal Reserve’s policies tightening, and the economy shaky, mortgage rates are shifting upward. Due to these forces and many more, future buyers in the housing market will face further barriers to acquiring financial support for mortgaging their homes and buying them at reasonable prices.
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What are the predictions for mortgage rates in 2025?
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It would require one to analyze some economic developments and other relevant trends to predict the mortgage rates 2025. Here, we shall discuss some important facts and assumptions about mortgage rates for the upcoming year:
Mortgages Schedule of Rates – 2025
Decrease Gradually Expected
Most analysts estimate that the rates should come down gradually and, by the end of late 2025, should be between 5-6%, assuming that inflation continues to stabilize as it is meant to. The Federal Reserve rates are lowered accordingly.
Federal Reserve’s Impact
As mentioned, this rate will also largely depend on federally held reserves. Exceeding the expected cut in federal funds would mean an anticipated decrease in mortgage rates. However, any such changes are likely to be minimalistic in their approach.
Economic Strength
Such rates would only apply if the inflation rate and the overall economy show some signs of stability. In contrast, remaining high, the rates could either stay the same or increase further if inflation is not controlled and the market conditions remain stagnant.
Investor Anxiety
The rates would still depend on the performance of the housing market. If the Mortgage rates remain high, there is a good chance that the demand for housing will decline, resulting in the lenders having to drop their rates to entice people to borrow. However, if that’s not the case and the demand is still there, then chances are the rates will remain high.
Geopolitical Factors
Lastly, trends in the global economy and bond yields can target investors, impacting the mortgage.
Though many mortgage rate projections predict a fall towards 2025, this is highly conditional due to factors like economics, the Federal Reserve, and market forces. Considering that mortgage rates will change, homebuyers must keep track of the changing conditions as the year develops.
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What factors could cause rates to rise instead of fall?
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Here are a few insights into the scenario where mortgage rates can increase:
What are Some Indicators that Can Lead to an Increase in Mortgage Rates?
Still Increasing Inflation:
If inflation continues to
- If the rate stays at a higher level, lenders can demand a higher mortgage rate to deal with the decrease in purchasing power from future payments.
- Due to the higher inflation, there are chances of further hikes in the Federal Reserve rates.
Policies by the Federal Reserve
If the Federal Reserve takes a more aggressive stance on reducing inflation, such as increasing the federal funds rate more than the expected set, this could also push up mortgage rates.
Enhanced Economic Growth
Increased demand for borrowing due to enhanced economic growth may push mortgage rates up. Stronger GDP growth, if sustained, will add upward pressure on rates.
Increasing Bond Yields
Increasing government spending or shifting investor sentiment generally raises bond yields, especially the ten-year Treasury primary. This directly raises mortgage rates.
Geopolitical Crisis
Conflict and trade friction can stimulate uncertainty in the financial market, which often increases the risk premium and mortgage rates.
Housing Trends
Resiliency of the Housing Market
If the housing market is strong, thanks to high demand, the lenders might feel less pressure and relax in lowering the rates, but in this case, the rates would remain high.
Trends: The Tight labor market
Wage growth could lead to inflation, making the Federal Reserve adopt stricter monetary policy and impact mortgage rates.
Even considering the falling predictions for mortgage rates, other factors could also lead to a rise. Because of that, buyers and investors would have to continue to remain alert to policies or other economic changes that could impact them.
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What are the current levels of inflation and the federal funds rate?
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Current rate Percentage
Inflation 3.6%
Federal Funds Rate 5.25% – 5.50%
Let’s dive into the inflation trend. Since December 2024, the US’s annual inflation rate has averaged around 3.6 percent. Additionally, the Federal Funds Rate has increased alongside the US Treasury rate in the past decade, so the US economy is on the right path. For now and as of now, the rate varies between 5.25-5.50, and it’s been so for quite some time. Keeping the inflation control in the center, the Federal Reserve is hopeful about the economic situation.
Hence, these figures are vital. They affect rates while representing the larger economic picture. Lunchtime also has an effect.
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Current rate Percentage
Inflation 3.6%
Federal Funds Rate 5.25% – 5.50%
Let’s dive into the inflation trend. Since December 2024, the US’s annual inflation rate has averaged around 3.6 percent. Additionally, the Federal Funds Rate has increased alongside the US Treasury rate in the past decade, so the US economy is on the right path. For now and as of now, the rate varies between 5.25-5.50, and it’s been so for quite some time. Keeping the inflation control in the center, the Federal Reserve is hopeful about the economic situation.
Hence, these figures are vital. They affect rates while representing the larger economic picture. Lunchtime also has an effect.
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Here are a few determinants that account for the current US inflation rate of 3.6% roughly:
Factors Associated with Current US Inflation Supply Chain Crises
Geopolitical tensions and the pandemic have triggered supply chain shortages, which have led to significant delays and rising goods costs, which in turn have caused inflation.
Cost of Energy
Overall inflation is mainly dictated and incurred by the vast oil and gas production cost. Recent trends show that the abrupt rise in the crude oil market tends to reinforce and increase the transportation side of the production market.
Labor Market
The market is currently experiencing high employment rates, and the tight labor market has been able to use this to increase rates. However, this will increase supply and demand for consumer goods, increasing inflation rates.
Consumer Demand
After the pandemic, the demand for travel and associated expenditures rose dramatically. The surge in demand consequently increased inflation rates.
Monetary Policy
The low interest rate policies undertaken by the Federal Reserve, together with measures taken alongside quantitative easing during the pandemic, drastically impacted the economy by accelerating the money supply, which may further dictate high inflation rates.
Housing Costs
With the rapid increase in home and rental costs, inflation rates have risen, as the housing price index is an important component of CPI measurement.
Global Economic Conditions
The ongoing economic recovery in various nations can increase the demand for American services and goods, which could push domestic prices higher due to a surge in competition.
These factors, in combination, have maintained an interesting stance throughout this time. These drivers will require close monitoring to comprehend inflation in the future and the possible outcomes of the Federal Reserve’s response.
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What actions is the Federal Reserve taking to combat inflation?
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The Federal Reserve has undertaken some important steps and strategies in response to the rising inflation. Economic measures taken by the Federal Reserve against inflation.
Raising of Key Interest Rates
The Fed has recently pushed the federal funds rate, including the current range of 5.25% to 5.50%. Higher interest rates are meant to cap the amount borrowed and spent, ultimately aiding in the reduction of inflation.
Tightening of Monetary Policy:
The Fed is increasing interest rates and shrinking its balance sheet size, which it refers to as quantitative tightening. This entails selling certain assets purchased during periods of quantitative easing, further tightening the monetary conditions in the economy.
Forward Guidance
The Fed can provide guidance on some policy intentions, telling the market its view of how our rates will evolve. This communication method is critical in shaping expectations and, as a result, economic behavior.
Monitoring of Economic Indicators
A close watch on inflation indicators, employment statistics, and economic growth populational figures allows the Federal Reserve to fine-tune its policies as the circumstances require. Such an approach enables timely action responses to up-to-date economic situations.
Targeting Core Inflation
The Fed employs core inflation, which excludes food items and energy sources, to identify broader inflationary trends in the economy. Thus, the Fed must change its policies whenever there are inflationary pressures.
Addressing Supply Chain Issues
The Fed cannot solve the supply chain problems directly. However, these problems may be considered when formulating policies, as the economy needs stability.
The Federal Reserve seeks to fight inflation without further economic contraction through these measures. However, the success of these measures will depend on the state of the global economy and the demand situation in the economy.
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