The first two weeks of 2025 have greeted the mortgage industry with heightened volatility, rising mortgage rates, and no clear indication that “normalization” is happening — unless, this is that.
Mortgage rate locks declined 16.7% on a monthly basis in December amidst rising mortgage rates as the 11.7% rise in rate-and-term refinance locks failed to offset the nearly 20% decline in lock for purchase loans, marking the second consecutive month of declining volumes after a string of increases.
However, year-over year lock volumes exhibited growth in December, per the latest figures from Mortgage Capital Trading, Inc., released Tuesday afternoon. Locks for purchase loans rose 22% compared to December 2023, while rate-and-term refinance were 104% higher.
“The Fed is expected to hold rates steady for longer as we continue to see a strong jobs market coupled with lowering inflation,” commented Andrew Rhodes, Senior Director and Head of Trading at MCT, on December’s figures. Employers added 256,000 non-farm payroll jobs in December, far exceeding forecasts of 153,000.
Amidst renewed inflation fears, the December labor data indicated that the next round of Federal Reserve interest rate cuts are farther down the road than the mortgage market would like as financing costs stay high and borrowers struggle with affordability.
At their mid-December meeting, policymakers conservatively mapped 2-3 rate cuts for 2025. Markets are leaning closer to two rate cuts this year, given the continued strength in hiring and not-yet-won battle with inflation.
“As we move into 2025," Rhodes continued, "nonfarm payroll and the Consumer Price Index (CPI) will continue to be critical data points providing insight into any potential rate cuts. However, the more immediate focus is on the incoming administration policy changes and their effect on the market.”
Mortgage applications ended 2024 on the decline, falling 21.9% over the second half of December on a seasonally adjusted basis. Mortgage rates at or above 7% in the past two weeks — the highest since July — have only led to further application declines since then.
A recent survey of housing professionals highlighted concern among some that the impact of Trump administration agenda items like tariffs on top U.S. trading partners, mass deportations, and the removal from federal conservatorship of the government-sponsored enterprises (GSEs) could create a two-tiered market, one that “benefits from tax reform and deregulation, and another that struggles with affordability challenges.”
Ongoing mortgage rate volatility, a worsening homeowners insurance crisis, and surging property taxes have added to the cost pressures keeping potential buyers sidelined, and thus, mortgage applications and lock volumes subdued.
