Mortgage demand plummets as interest rates rise: December 2024 market analysis

A sharp increase in mortgage interest rates toward the end of December took a toll on mortgage demand, just as the housing market entered its typically slowest time of the year. For the two-week period ending December 27, 2024, total mortgage application volume fell by 21.9% compared to the previous week, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index. The MBA released two weeks' worth of data after being closed for the holiday, with additional adjustments made for the Christmas holiday. During that time, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less increased to 6.97%, up from 6.89%. Points also rose to 0.72 from 0.67, including the origination fee, for loans with a 20% down payment. Compared to the previous year, mortgage rates were 21 basis points higher. “Mortgage rates moved higher during the last full week of 2024, reaching almost 7% for 30-year fixed-rate loans,” said Mike Fratantoni, Chief Economist at the MBA. “As expected, this increase in rates — at a time when housing activity typically slows — led to declines in both refinance and purchase applications.” Refinance applications, which are most sensitive to changes in interest rates, dropped 36% compared to two weeks earlier. However, they remained 10% higher than the same period last year. The refinance share of mortgage activity decreased to 39.4% of total applications, down from 44.3% the previous week. Applications for purchasing a home fell by 13% over the two-week period and were 17% lower than the same period a year ago. While December is generally the slowest month for home sales, these numbers are seasonally adjusted, and the annual comparison shows significant weakness. Although there are more homes on the market now than there were at this time last year, many of those homes have been sitting for months due to high prices and elevated interest rates. Mortgage rates began this week above 7% for the 30-year fixed, according to a separate survey by Mortgage News Daily. Given the holidays falling midweek this year, there is considerable volatility in these numbers. “There’s no way to know where the bond market will open up on Thursday,” said Matthew Graham, Chief Operating Officer at Mortgage News Daily. “The final or first trading day of any given year can see extra volatility or momentum for reasons that don’t have anything to do with the usual factors, like economic data, news, or policy changes.”