Market Update December 23rd, 2024

The Federal Reserve implemented its third interest rate cut of 2024 on Wednesday, reducing its benchmark rate by 0.25 points. However, this adjustment did not translate into a decrease in mortgage rates. Instead, the 30-year fixed-rate mortgage spiked to 6.72% for the week ending December 19, according to Freddie Mac data. This represents an increase from 6.60% the week prior. Mortgage News Daily reported an even sharper rise, with intraday rates reaching 7.13% on the day of the Fed meeting and climbing further to 7.14% on Thursday.

The apparent disconnect between the Fed's rate cuts and rising mortgage rates can be attributed to the bond market, which heavily influences borrowing costs. Mortgage rates closely track Treasury yields rather than the federal funds rate. This dynamic was evident in November when mortgage rates increased in response to market reactions following Donald Trump’s election win. Experts noted that the Federal Reserve’s indication of fewer rate cuts in 2025 might have contributed to the bond market volatility, further driving up borrowing costs.

Market anticipation plays a significant role in mortgage rate fluctuations, as noted by Jacob Channel, a senior economist at LendingTree. For instance, mortgage rates declined during the summer and early fall in anticipation of the Fed’s initial rate cut in September. However, actual Fed meetings often result in limited immediate changes to mortgage rates. The dot plot released by the Federal Reserve this week suggested that its benchmark lending rate could drop to 3.9% by the end of 2025. This represents a target range of 3.75% to 4%, which is still above the current range of 4.25% to 4.50% following the latest rate cut.

Experts also point to policy uncertainties as a source of market unease. Melissa Cohn, regional vice president of William Raveis Mortgage, highlighted that inflationary policies, such as those related to tariffs, immigration, and tax cuts, have exacerbated bond market volatility. These factors, combined with the Fed’s cautious outlook for future rate cuts, have created a complex landscape where borrowing costs continue to rise despite the central bank’s actions to ease financial conditions.

It will be interesting to see as we enter buying season in January when the snowbirds kick off the buying season here in Phoenix! With elections in the past, the holidays, and the new year started there are no more objective dismissals buyers can give as we enter January!

"Setting goals is the first step in turning the invisible into the visible."
-Tony Robbins

Have a great week everyone! Happy Holidays!