According to the latest data from the Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey for the week ending January 3, 2025, mortgage application activity declined amid rising interest rates, with adjustments made for the New Year’s holiday.
The Market Composite Index, which tracks mortgage loan application volume, fell by 3.7% on a seasonally adjusted basis compared to the previous week. However, on an unadjusted basis, the Index surged by 47% from the prior week.
The Refinance Index saw a 2% increase but remained 6% lower than the same period last year. Meanwhile, the seasonally adjusted Purchase Index declined by 7%, while the unadjusted Purchase Index increased 43% week-over-week but was still 15% lower than a year ago.
The Impact of Rising Mortgage Rates
“Last week’s decline in applications reflects the continued impact of rising mortgage rates, which are discouraging prospective buyers and dampening overall purchase activity. The 30-year fixed mortgage rate climbed for the fourth consecutive week, reaching 6.99%, the highest level since July 2024,” said Joel Kan, MBA¡¯s Vice President and Deputy Chief Economist. “Both conventional and government-backed purchase applications dropped to their slowest pace since February 2024. Although refinance applications increased, the rise came from historically low levels and was primarily driven by a surge in VA refinances, which have shown weekly fluctuations.”
Housing Market Faces Inventory and Construction Challenges
Despite an increase in new home sales in November 2024, homebuilders are facing an inventory issue that could have broader economic implications. New home sales rose by 5.9% from October, reaching a seasonally adjusted annual rate of 664,000, according to the latest Census Bureau and HUD report. This figure also represents an 8.7% increase from November 2023.
However, housing starts and permits are currently at recession levels, as builders pull back due to rising mortgage rates and growing inventory. The number of completed units available for sale stands at 120,000, which, while not overwhelming, has made builders more cautious about issuing new permits.
Many homebuilders still have a significant number of homes they haven¡¯t started yet, meaning they are waiting for more clarity on mortgage rates before moving forward with additional projects.
What This Means for the Housing Market in 2025
The rising mortgage rates and increasing supply pose a risk to residential construction jobs in 2025. Over the past two years, new home sales have significantly outperformed the existing home sales market.
However, if rates remain elevated, builders may slow down on issuing new permits, which could lead to job losses among residential construction workers.
Historically, when housing starts and permits decline together, job losses in the construction sector tend to follow before the broader economy enters a recession. Earlier this year, when mortgage rates were trending at 7.50%, the economy recorded a negative monthly residential construction labor report. More recently, rates briefly dropped to 6% but have since climbed above 7%, adding more pressure to builders and buyers alike.
Builder Strategies and Market Pressures
To combat affordability challenges, builders have been offering lower mortgage rates to attract buyers. However, this strategy is becoming more expensive as profit margins shrink.
Unlike the existing home sales market, which has been operating at record lows, new home sales never experienced a massive collapse, meaning builders have a higher bar to clear in maintaining sales momentum.
With private payroll growth slowing and mortgage rates rising, the Federal Reserve faces growing pressure, particularly if job losses begin to mount in the residential construction sector.
If supply continues to build while demand softens, homebuilders will have to carefully balance inventory levels with future projects to avoid further economic downturns.
Market Breakdown
- Refinance Activity: The refinance share of total mortgage applications increased to 40.8%, up from 39.4% the previous week.
- Adjustable-Rate Mortgages (ARMs): The share of ARMs declined to 4.7% of total applications.
- Government-Backed Loans:
- FHA loan applications increased to 16.9% from 16.6%.
- VA loan applications rose to 16.2% from 15.7%.
- USDA loan applications edged up to 0.6% from 0.4%.
Mortgage Rates and Points
- 30-Year Fixed-Rate (Conforming Loans ¡Â $766,550): Increased slightly to 6.99% from 6.97%, with points declining to 0.68 from 0.72. The effective rate remained unchanged.
- 30-Year Fixed-Rate (Jumbo Loans > $766,550): Decreased to 6.99% from 7.13%, though points increased to 0.74 from 0.64. The effective rate declined.
- 30-Year Fixed-Rate (FHA Loans): Dropped to 6.65% from 6.69%, with points decreasing to 0.91 from 1.05. The effective rate also fell.
- 15-Year Fixed-Rate Mortgages: Increased to 6.46% from 6.43%, while points decreased to 0.62 from 0.75. The effective rate rose.
- 5/1 Adjustable-Rate Mortgages (ARMs): Increased slightly to 5.98% from 5.97%, with points dropping to 0.26 from 0.65. The effective rate declined.
Looking Ahead
While new home sales showed an uptick in the latest report, the housing market still faces significant challenges. Higher mortgage rates, increasing supply, and job market pressures could impact the broader economy as builders reassess their strategies. If mortgage rates remain elevated, homebuilders may slow construction further, leading to potential job losses in residential construction.
As 2025 begins, industry experts will be closely monitoring interest rates, housing starts, and labor market trends to determine whether the Federal Reserve will need to adjust its policies in response to a slowing housing market.