Mortgage Market Update: What’s Happening in December 2024?
As we head into December 2024, the housing market continues to navigate economic shifts, with mortgage rates dropping to their lowest point in over a month. But what does this mean for homebuyers, real estate trends, and mortgage rates moving forward? Let’s dive into the latest insights from market experts, economic data, and predictions for the months ahead.
Mortgage Rates: A Modest Drop, but Still Challenging
This week, mortgage rates experienced a slight dip, marking the lowest level in over a month. According to Freddie Mac’s Chief Economist Sam Khater, even small changes in rates have a noticeable effect on homebuyer demand. Despite the decrease, affordability remains a significant concern. Homebuyers are responding positively to even modest rate reductions, showing how sensitive the market is to changes in mortgage rates.
For many prospective buyers, mortgage rates and home prices are the biggest hurdles. The affordability challenge continues to affect the housing market, even with this temporary drop in rates. In short, the demand for homes remains strong, but many buyers are still struggling to find homes within their budget.
The Federal Reserve and the Rate-Cut Outlook
A major factor influencing mortgage rates is the Federal Reserve’s stance on interest rates. Following the release of jobless claims data, the markets are anticipating a 74% chance of a quarter-point rate cut at the Federal Reserve’s meeting on December 18, 2024. If this happens, the Fed’s benchmark rate would decrease to a range of 4.25% to 4.5%.
However, while the market is confident in the December rate cut, expectations for further rate cuts in 2025 have softened. The current sentiment is divided, with markets predicting anywhere from 50 to 75 basis points in additional rate cuts next year. These shifts in Fed policy will continue to affect mortgage rates, making it important for buyers and homeowners to stay updated.
Economic Data: Key Insights from the Last Week
Understanding the economic data from the past week can help you make sense of how the market is moving. Here’s a quick look at some important numbers:
- ISM Manufacturing PMI (December 2): This index rose to 48.4, which is higher than the forecast of 47.5. While it still signals a contraction in the manufacturing sector, the slowdown is less severe than expected.
- ADP Jobs Report (December 4): Private-sector employers added 146,000 jobs in November, slightly below the expected 150,000. However, job growth remains steady despite recent softening trends.
- S&P Global US Services PMI (December 4): This was revised down to 56.1 from the preliminary 57 but still shows strong growth in the services sector, especially in business activity and new orders.
- ISM Services PMI (December 4): The services sector showed slower growth, with the index dropping to 52.1, below the expected 55.5. This slowdown in business activity and new orders may indicate that economic momentum is waning.
- Initial Jobless Claims (December 5): The number of jobless claims rose to 224,000, which is higher than expected, signaling a slight increase in layoffs.
Housing Affordability: The Struggle for Homebuyers
One of the most important factors for buyers is affordability. According to recent data, the average American now needs to earn $108,000 per year to afford a new single-family home, factoring in property taxes and insurance. This is a significant jump for many, especially those not earning six figures. As a result, homebuyers are becoming more selective, and many are having to adjust their expectations in terms of the size and location of the homes they can afford.
The Impact of Tariffs on Home Prices
A hidden factor affecting the cost of new homes is tariffs on imported materials. Construction costs make up about 61% of the price of a new home, and of that, 7.3% comes from imported materials. A 30% tariff on these materials could add an extra $3,000 to the price of a median new home. This has been one of the contributing factors to rising home prices, alongside labor costs and supply chain disruptions.
Looking Ahead: What’s Next for Mortgage Rates?
As we head into 2025, mortgage rates will likely continue to fluctuate based on Federal Reserve actions, economic data, and inflation trends. Homebuyers should stay informed about the Fed’s upcoming decisions, particularly the anticipated rate cut in December, as it could help lower mortgage rates in the near term.
However, the broader affordability challenge will remain in place. With home prices continuing to rise and mortgage rates still relatively high, buyers will need to carefully consider their budget and financing options when making a purchase.
Key Takeaways
- Mortgage Rates Are Down, But Affordability Is Still a Concern: While there’s been a drop in mortgage rates, the cost of buying a home is still a challenge for many.
- Fed Rate-Cut Likely in December: The Federal Reserve is expected to cut rates in December, which could further lower mortgage rates.
- Economic Data Shows Mixed Signals: Job growth is steady, but certain sectors are slowing down, which could impact future growth.
- Home Affordability Remains Tough: Rising home prices mean that many buyers need a six-figure salary to afford a new home.
- Tariffs Are Adding to Home Prices: The 30% tariff on imported materials could add up to $3,000 to the cost of a new home.
Conclusion
As we wrap up 2024, the housing market continues to evolve, with mortgage rates, affordability, and the Federal Reserve’s policies all playing crucial roles. For homebuyers, staying informed about market trends and economic data will be key to navigating the challenges ahead. Whether you’re buying your first home or refinancing, understanding these factors can help you make smarter decisions in a competitive market.
Stay tuned for more updates as we move into the new year!