Today's Mortgage Rates - 12/21/2024

Mortgage Rates Rebound

So much for the recent mortgage rate decline.

Freddie Mac reported today that the average offered interest rate for a conforming 30-year fixed-rate mortgage (FRM) rose by twelve basis points (0.12%) to 6.72%. erasing a fair portion of the December decline in rates.

Average offered rates for 15-year fixed-rate mortgages posted an eight basis point (0.08%) increase, leaving the most popular short-term mortgage at 5.92%, just about where it was two weeks ago.

A 5/1 ARM might offer a homebuyer slightly lower-cost alternative to a long-term fixed-rate mortgage, and the difference in rate between 30-year FRMs and 5/1 ARMs expanded this week. The Mortgage Bankers Association reported that the initial fixed interest rate on a hybrid 5/1 ARM posted a twenty two basis point (0.22%) rise to 6.03% this week. The current 69 basis point gap compared to a long-term fixed-rate loan renders the choice of this ARM potentially compelling for homebuyers seeking a break on monthly payments.

The Fed lowered interest rates on Wednesday, but bond markets didn't much care for the action or the Fed's outlook. Bond yields were already firming heading into the meeting, but after the Fed cut and upward revision to the inflation outlook for next yet, they leapt higher still.

Issued every other FOMC meeting, the Summary of Economic Projections reveals Fed members' expectations for economic growth, unemployment, inflation and the likely position of monetary policy rates over the next year and beyond. In September, those outlooks suggested 2025 would see modest growth, and somewhat higher unemployment with headline PCE inflation of 2.1% and core PCE of 2.2%. The December update to those forecasts points to a bit more growth and less of an increase in unemployment. Importantly, it also projects that headline PCE inflation will run at 2.5% -- up 0.4% from September -- while core will also run at a 2.5% clip, up from 2.2% three months ago.

That the Fed would be cutting rates now and in the future even as inflation remains not only above target levels but also expected to decline much more slowly than it has led some bond investors to question the Fed's commitment to getting inflation to its goal anytime soon. If core PCE inflation is 2.8% now and only likely to drift lower by the time next December rolls around it may be difficult for long-term interest rates and mortgage rates to meaningfully decline. Time will tell.

Bond yields had already been in a firming mode in the days leading up the Fed meeting and have only pushed higher since. This sets the stage for another leg up in mortgage rates now and in the coming days, possibly enough to have them return to mid-November levels, which at the time were the highest in about five months. Given the holidays over the next couple of weeks, there will likely be few mortgage borrowers in the markets, so at least fewer borrowers will be troubled by them... for now.

Each week in HSH's MarketTrends newsletter, we track and discuss economic conditions that affect mortgage rates and their impact on housing markets and consumers. Read the most recent edition of MarketTrends or subscribe for email delivery.