Mortgage rates haven’t moved much in the past week, but Wednesday’s meeting of the Federal Reserve should give some clearer insights into where the market is headed at the end of the year.
The Federal Open Market Committee (FOMC) is scheduled to announce its decision on the federal funds rate at 2 p.m. ET Wednesday, with Chairman Jerome Powell set to answer questions from journalists at 2:30 p.m. Interest rate traders are nearly unanimous that the Fed will lower benchmark rates by 25 basis points (bps) to a range of 4.25% to 4.5%.
The CME Group’s FedWatch tool gave 95% odds on Tuesday of a 25-bps cut. This would be the third straight meeting with a rate cut following decreases of 50 bps in September and 25 bps in November. But mortgage rates haven’t moved in tandem with the lower policy rates and there is little to indicate this pattern will change.
“Uncertainty remains the theme and will continue to be the case as the Fed will not likely provide any new guidance when it makes its rate decision on Wednesday,” Afifa Saburi, a capital markets analyst at Veterans United Home Loans, said in a statement. “We will get a new dot plot (interest rate forecast), but these projections will not yet take into account what’s to come from the policies of the new administration.
“As these expectations are already priced in, the market shouldn’t pull back this week and mortgage rates are likely to remain mostly unchanged.”
Patricia Maguire-Feltch, managing director of consumer origination sales at Chase Home Lending, told HousingWire that predicting market reactions and mortgage rate movements after the Fed meeting is “difficult if not nearly impossible to do.” But she also echoed takeaways from a recent Fannie Mae sentiment survey that shows rising positivity among consumers.
“We are seeing more optimism around the mortgage market and an uptick in homebuying demand,” Maguire-Feltch said. “If rates continue to decline, there’s a good chance we’ll see the lock-in rate soften and homeowners and buyers alike will likely be more comfortable with taking on a higher rate.”
At HousingWire’s Mortgage Rates Center on Tuesday, the 30-year conforming fixed-rate loan averaged 6.85%, down 2 bps from a week ago. The 15-year conforming fixed rate averaged 7.02%, up 1 bps during the week. It’s unusual for the 15-year rate to exceed the 30-year rate, but it’s a pattern that began to emerge about a month ago.
“While historically the 15-year interest rates are lower than the 30-year, both respond to a variety of economic factors, such as inflation and employment numbers,” Maguire-Feltch explained. “Daily fluctuations of these numbers could be the market’s response to items like stalling inflation progress and rising consumer prices. As a result, this could have led to a slight jump in the 15-year. While this scenario is possible, it’s likely to not persist long term.”
First American senior economist Sam Williamson said that the FOMC’s interest rate forecast to be released Wednesday is likely to show a less bullish outlook for cuts in 2025.
“Several committee members have suggested that slowing the pace of rate cuts is appropriate, given the recent outperformance of the U.S. economy and stalled progress on bringing down inflation,” Williams said in a statement. “This includes a potential pause in January, with an 84 percent market-implied probability.”
Rates might not need to fall sharply to unlock another window for refinance business. When rates fell to the low-6% range in September and October, nearly 300,000 borrowers took the opportunity to refinance, according to the December 2024 Mortgage Monitor report from Intercontinental Exchange. Borrowers with loan balances above $750,000 needed less incentive than those with smaller balances, the report showed.
“We saw volume pick up as a 50-basis point drop made sense financially for a lot of existing homeowners,” Maguire-Feltch said. “If rates drop below 6%, roughly 4.7 million consumers would be eligible for a refinance opportunity, leading to increased activity in the refinance market and thus increased demand for lenders.”
Maguire-Feltch also said that continued advancements in artificial intelligence (AI) “will influence almost every aspect of mortgage lending.” She expects that shifts away from paper-based processes will reduce the time and cost spent on each loan. In turn, this could lessen the impacts of higher interest rates.
“AI will be leveraged more in 2025 to analyze market trends and enable lenders to offer resources that align with the current market,” she said. “There is a lot in store for AI in 2025, but we anticipate it will be a few years before we see sustainable impacts of the technology.”
