Mortgage Update - December 23rd, 2024
Hello everyone! Who says that the week before Christmas was supposed to be quiet in the market?! Last week was absolute pandemonium in the mortgage world. We are here to breakdown how it all unfolded!
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Read time: ~4 minutes
Rate Cut Confusion: Why the Fed’s Move Sent Mortgage Rates Higher 🤔
This might be a good time to ask Trump again if he'd like to fire Jerome Powell 😂😭
Heading into the Fed meeting on Wednesday, there was a 97% chance of the Fed cutting rates by 0.25%—a move that had been widely anticipated as the third rate cut this year. The meeting came, Powell cut 0.25%, and then he opened his big fat mouth.
After announcing the rate cut, Powell commented, “Today was a closer call, but we decided it was the right call [to cut].” This cautious statement caught many off guard, considering the rate cut was almost a given.
Then came the real shock: Powell unveiled the updated "Fed Dot Plot", which outlines rate cut projections for 2025. Just last month, the Fed had projected four rate cuts in 2025. Now, the updated Dot Plot reflected a dramatic shift, showing expectations for only TWO cuts in 2025.
Additionally, the Fed increased its end-of-2025 inflation projection from 2.1% to 2.5%, signaling a clear struggle to meet its 2% inflation target by next year.
This sudden change in sentiment triggered a bloodbath in the markets, causing the stock market to tank and mortgage rates to spike. Why such a strong reaction? As you loyal readers of our newsletters know, the market moves based on expectations! Mortgage rates moved higher due to increased expectations for higher inflation and fewer rate cuts in 2025.
Key Takeaway: Mortgage rates increased last week as the Fed adjusted its outlook, projecting higher inflation and fewer rate cuts for 2025. If these expectations hold true, mortgage rates are likely to stay higher for longer.
Do Mortgage Rates Follow Fed Fund Rates??
One of the most common reasons buyers give for wanting to wait to purchase is, "We heard the Fed is going to continue to lower rates, so we're waiting for mortgage rates to drop."
If this past week has shown us anything, it's that mortgage rates and Fed rate cuts DO NOT move hand-in-hand!
We all know it is a common misconception to the everyday consumer that mortgage rates follow the Fed’s rate cuts or hikes. While they may align over long periods, they often move independently in the short term. Take a look at how the Fed’s rate cuts have impacted mortgage rates this year:
Looking at the chart, you can see that mortgage rates actually dropped nearly 2% in 2024 during the period of time in which the Fed's Fund rate remained flat! Ironically, it wasn't until the Fed actually CUT rates in September that mortgage rates began to move HIGHER.
This highlights that mortgage rates are influenced by a variety of factors—not just the Fed’s decisions. The future expectations of the Fed had a greater impact on mortgage rates that the actual rate cut itself!
Key Takeaway: Mortgage rate trends are notoriously unpredictable, and relying solely on Fed actions can create unrealistic expectations. The Fed's influence on rates is more closely linked to shifts in their rate outlook or remarks from Fed Chair Powell following a rate cut announcement.
2025 Mortgage Rate Predictions!
As the year comes to a close, it's time to explore what the future may hold for mortgage rates in 2025! Here’s a snapshot of recent forecasts from industry leaders:
Fannie Mae: Rates staying above 6.5%
HousingWire: 5.75% to 7.25%
Mortgage Bankers Association: 6.4% to 6.6%
NAR: Around 6%
Realtor.com: 6.3%
Redfin: High 6%
Wells Fargo: 6.25% to 6.65%
While there was early optimism that rates might drop to the high 5% / low 6% range by the end of 2025, the outlook has clearly shifted. Most experts now anticipate rates will remain above 6% well into 2025.
Stay tuned for our final 2024 newsletter next week, featuring market predictions from our main man, Nick Steinhauer!