Market Update: Most Stable Rate Trend Since 2021; Pending Sales, New Sales, and Mortgage Demand Increase; Fed Interest Rate Decision Coming Up This Week

Blog posted On January 30, 2023

There are a lot of ways you could describe mortgage rate trends over the past year – volatile, variable, unpredictable, aggressive. One word we haven’t used to describe rate trends in a while is stable. The last time rates were trending with this much stability was in 2021, according to data from Mortgage News Daily. While the big headline is that rates are trending lower than they were roughly 4 months ago, the unsung hero is the stability of rate trends. Lower rates are more of an attractive headline, but the big win in the long run is going to be stability. It’s not a guarantee that rates will continue on their current path, but already, we’re seeing some positive effects trickle in because of the consistently lower rate trends in recent months.

The first positive effect is that mortgage demand has soared. Last week marked the third consecutive week of increased mortgage application submissions. Applications rose a total of 7% during the week ending 1/20, a gigantic 27.9% the week before that, and 1.2% during the week ending 1/6. The most recent burst brought purchase application submissions to their highest level since August 2022. “As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time home buyers,” said Mike Fratantoni, SVP and Chief Economist for the Mortgage Bankers Association.

Additional results from recent rate trends likely include December’s numbers for new home sales and pending home sales, which were released last week. While new home sales were projected to fall 4.7% month-over-month, they actually increased 2.3%. “In December, the typical new home cost almost $50,000 less than in October,” wrote NerdWallet home and mortgage expert Holden Lewis. “The combination of lower rates and lower prices boosted sales in December and might be doing the same in January.” Pending home sales, which represent homes that are under contract but not yet closed, were expected to fall 0.9% in December. The final number ended up being a monthly increase of 2.5%. “This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

This week, home price appreciation is coming up in both the FHFA house price index and the Case-Shiller home price index. We also have some important employment data coming out but most importantly we have the first Federal Reserve interest rate decision of the new year. In December, the Fed voted to slow the pace of interest rate hikes from 0.75% to 0.50%. This was largely a result of cooler-than-expected inflation data. It’s unlikely Fed will slow hikes even more this week.

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Sources: Bloomberg, HousingWire, MarketWatch, Mortgage Bankers Association, Mortgage News Daily, Mortgage News Daily