Mortgage rates increased three basis points last week according to the Freddie Mac Primary Mortgage Market Survey released on December 11th. Despite this increase, on both the same period last year and year to date basis, current rates are nearly 40 basis points lower. This helps provide a sense of balance to the housing market.
Mortgage applications increased 4.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 5th. “Compared to the prior week’s data, which included an adjustment for the Thanksgiving holiday, mortgage application activity increased last week, driven by an uptick in refinance applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Conventional refinance applications were up almost 8 percent and government refinances were up 24 percent as the FHA rate dipped to its lowest level since September 2024. Conventional purchase applications were down for the week, but there was a 5 percent increase in FHA purchase applications as prospective homebuyers continue to seek lower down payment loans. Overall purchase applications continued to run ahead of 2024’s pace as broader housing inventory and affordability conditions improve gradually”.
A key inflation measure was lower than expected in September, the Commerce Department said last Friday in a report delayed by the government shutdown that gives a further green light for the Federal Reserve to lower interest rates. The core personal consumption expenditures price index, which excludes volatile food and energy prices, indicated a 0.2% monthly rise while the annual rate was 2.8%. In addition, headline PCE increased 0.3% for the month, putting the annual inflation rate also at 2.8%, according to the department’s Bureau of Economic Analysis. Federal Reserve officials use the PCE price index as their primary policy tool for inflation. While officials look at both measures, they generally consider core a better indicator of longer-term inflation trends. “The slightly stale September inflation report shows that prices remained reasonably stable despite tariffs and healthy consumer spending. This probably provides further air cover for the Fed to cut rates in December,” said Scott Helfstein, Global X’s head of investment strategy.
The Federal Reserve cut interest rates Wednesday in an unusually narrow vote, underscoring the divides among bank officials over the effect rate cuts will have on inflation and employment. The Federal Open Market Committee dropped its baseline interest rate down to a range of 3.5 to 3.75, a reduction of 0.25 percentage points. They approved the rate cut by a vote of 9 to 3, a smaller margin than the typical Fed rate decision. The unusual number and nature of Wednesday’s dissents revealed how hard it could be for Fed Chair Jerome Powell, and his eventual successor, to keep the FOMC united with the economy at a foggy crossroads. In a Wednesday press conference, Powell downplayed the divides among FOMC members, saying they broadly agree on the fundamental issues facing the economy, but differ over the best way to tackle them. “Everyone agrees that inflation is too high, and we want it to come down, and agree that the labor market has softened and that there’s further risk. Everyone agrees on that,” Powell said.
The Federal Open Market Committee will meet next week to decide whether to continue cutting short-term interest rates, following a 0.25 percentage point reduction in October, or hold the federal funds rate at current levels. The outcome of the meeting is less certain than recent Federal Open Market Committee decisions because of limited economic data, a byproduct of the federal government’s shutdown. The Bureau of Labor Statistics said it will not release October inflation and employment figures because they were not collected during the shutdown and November data will be released after the meeting. The lack of data so close to a Federal Reserve meeting is concerning. It leaves policymakers without the most current figures on which to base their decisions. As a result, most members have said the shortage of information will factor into the committee’s deliberations.
