Mortgage Rates Dip Slightly Amid Economic Uncertainty and Rising Homebuyer Sentiment

Mortgage rates hover above 7%, but signs of hope emerge for buyers and lenders as job gains and new-home construction provide a silver lining in a complex market.

The long-term cost of home loans hovers above 7%, but recent trends show a silver lining for both consumers and lenders, even as the Federal Reserve presses pause on interest rate cuts.

Current Mortgage Rates

This Tuesday, the average rate for 30-year conforming loans dipped to 7.10%, down 4 basis points from last week and 8 from two weeks ago.

Meanwhile, 15-year conforming loans experienced a more significant drop, falling 10 basis points to 7.32%.

While the Fed’s recent decision adds some predictability to the mortgage landscape, uncertainty remains.

The U.S. labor market is booming with job creation, yet potential challenges loom due to proposed mass deportation strategies that could strain labor-intensive sectors, like home construction, heavily reliant on undocumented workers.

Inflation and Economic Indicators

Though inflation has cooled since the Fed’s aggressive hikes in 2022, it still exceeds the central bank’s 2% target.

Analysts are wary that ongoing tariffs on vital trading partners—including Canada, Mexico, and China—could inflate the costs of goods and services.

However, there is a glimmer of hope as the President announced a temporary one-month pause on tariffs with Canada and Mexico, following border security agreements.

In an interview with HousingWire, Kevin Ryan, CFO of digital lending platform Better, remarked that the landscape for monetary policy has grown increasingly complex.

He remains optimistic about improvements in mortgage lending, even if progress lags behind expectations.

He noted a shift away from higher rates seems unlikely, with current policies aiming to lower rates amid stubborn inflation concerns.

Homebuyer Sentiment and Trends

Matt Vernon, head of consumer lending at Bank of America, echoed this sentiment, predicting that the Fed will remain cautious.

He believes that even if mortgage rates don’t drop significantly, home sales could still rise in 2025.

Current rates are still below the historical average of 7.72% since 1971.

Vernon has noticed a rise in homebuyer sentiment, fueled by hopes for future rate decreases, despite ongoing affordability challenges.

Ryan noted that consumers with wages outpacing inflation are inclined to purchase homes now, with a plan to refinance later.

In contrast, those whose income hasn’t kept pace are feeling the financial pinch.

Interestingly, he observed that affluent younger buyers are generally optimistic about homeownership and eager to buy this year.

The Personal Consumption Expenditures (PCE) index, a key gauge for the Fed, indicated a 2.6% year-over-year increase in December.

Anticipation builds for January’s data release at the end of this month, which may offer clues about future benchmark rates ahead of the Fed’s March meeting.

Ryan commented on the political landscape, suggesting that mass deportations could lead to labor shortages, inadvertently driving up wages and causing inflation as companies compete for workers.

A tightening labor market may hinder efforts to boost housing supply.

Many sellers are opting not to list their homes, prompting potential buyers to increasingly turn to new construction.

The new-home market is thriving, partially due to builders offering mortgage rate buydowns to ease borrowing costs.

Vernon highlighted that lenders could bolster this trend by aligning financing options with builder incentives, capitalizing on the renewed interest in new homes—even if it’s uncertain how long this momentum will last.

Source: Housingwire