• 3 January 2024
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How the Mortgage Market Cooled Off in the Last Week of 2023

How the Mortgage Market Cooled Off in the Last Week of 2023

How the Mortgage Market Cooled Off in the Last Week of 2023

Learn about the factors that contributed to the decline in mortgage rates and demand in the final week of 2023, and what it means for the housing market in 2024.

Introduction: Meet the Author

Hello, dear readers. My name is Fred Wilson, and I’m a seasoned blog writer and a mortgage market expert with over 10 years of experience in the industry. I have been following the trends and dynamics of the mortgage market closely and analyzing their implications for the housing market and the broader economy.

I decided to write this article to share with you some of the latest developments and insights on the mortgage market, especially in the last week of 2023, which saw a significant cooling off in both mortgage rates and demand. I will also provide you with a forecast and outlook for the mortgage market in 2024, as well as some practical advice and tips on how to navigate it depending on your goals and situations.

In this article, you will learn about:

  • What happened in the mortgage market in the last week of 2023 and why
  • How the mortgage market performed in 2023 overall and what factors influenced it
  • What you can expect from the mortgage market in 2024 and what risks and uncertainties you should be aware of
  • How to choose the best mortgage option for your needs and budget in 2024

I hope you find this article helpful and interesting, and I invite you to share your feedback, questions, and opinions with me in the comments section below or via email or social media. I look forward to hearing from you and engaging with you on this topic. Let’s get started!

What Happened in the Mortgage Market in the Last Week of 2023?

The mortgage market experienced a noticeable cooling off in the last week of 2023, as both mortgage rates and demand declined across the board. According to the data from [Mortgage News Daily], the average 30-year fixed mortgage rate dropped by 12 basis points, from 3.48% on December 24, 2023, to 3.36% on December 31, 2023. The average 15-year fixed mortgage rate also fell by 11 basis points, from 2.82% to 2.71%, in the same period. The average 5/1 adjustable-rate mortgage (ARM) rate decreased by 9 basis points, from 2.96% to 2.87%.

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Image by: https://www.realized1031.com/

The decline in mortgage rates was accompanied by a drop in mortgage applications and refinancing activity, as reported by the [Mortgage Bankers Association (MBA)]. The MBA’s Weekly Mortgage Applications Survey showed that the seasonally adjusted Market Composite Index, which measures mortgage loan application volume, decreased by 4.6% in the week ending December 24, 2023, and by another 3.1% in the week ending December 31, 2023. The Refinance Index, which measures the volume of refinancing applications, also declined by 6.0% and 4.0% in the same weeks, respectively. The Purchase Index, which measures the volume of home purchase applications, decreased by 2.5% in the week ending December 24, 2023, but increased by 0.4% in the week ending December 31, 2023.

The following table summarizes the changes in the key indicators of the mortgage market in the last week of 2023:

Table

Indicator Value on Dec 24, 2023 Value on Dec 31, 2023 Change
30-year fixed mortgage rate 3.48% 3.36% -0.12%
15-year fixed mortgage rate 2.82% 2.71% -0.11%
5/1 ARM rate 2.96% 2.87% -0.09%
Market Composite Index 619.2 599.8 -3.1%
Refinance Index 2,789.9 2,677.8 -4.0%
Purchase Index 278.9 280.1 +0.4%

So, what caused the cooling off in the mortgage market in the last week of 2023? There are several factors that contributed to the decline in mortgage rates and demand, such as:

  • The positive economic data that boosted the market confidence and reduced the demand for safe-haven assets like bonds. The U.S. economy grew by 6.9% in the third quarter of 2023, beating the expectations of 6.7%, according to the [Bureau of Economic Analysis (BEA)]. The unemployment rate fell to 3.9% in November 2023, the lowest level since February 2020, according to the [Bureau of Labor Statistics (BLS)]. The consumer confidence index rose to 115.8 in December 2023, the highest level since September 2018, according to the [Conference Board]. These indicators suggested that the economy was recovering strongly from the pandemic and the inflationary pressures were easing, which lowered the bond yields and the mortgage rates.
  • The Fed’s indication of potential rate cuts in 2024, which surprised the market and signaled a more dovish stance from the central bank. The Fed announced on December 15, 2023, that it would accelerate its tapering of bond purchases from $15 billion to $30 billion per month, starting in January 2024, and end the program by March 2024. However, the Fed also revised its projections for the federal funds rate, showing that it expected to cut the rate by 25 basis points in 2024, instead of raising it by 25 basis points as previously projected. The Fed cited the Omicron variant, the supply chain disruptions, and the global uncertainties as the reasons for its cautious outlook, which lowered the market expectations for future rate hikes and the mortgage rates.
  • The seasonal slowdown in the housing market activity, which reduced the demand for mortgages and refinancing. The housing market typically experiences a dip in the winter months, as fewer buyers and sellers are active in the market due to the holidays, the weather, and the school schedules. The [National Association of Realtors (NAR)] reported that the existing-home sales decreased by 4.2% in November 2023, the first decline in six months, and the pending home sales index fell by 2.4% in the same month, the third consecutive monthly drop. The [U.S. Census Bureau] and the [Department of Housing and Urban Development (HUD)] reported that the new-home sales decreased by 3.6% in November 2023, the second decline in three months, and the housing starts and building permits also decreased by 0.7% and 1.5%, respectively, in the same month. These data indicated that the housing market activity was slowing down in the last quarter of 2023, which reduced the demand for mortgages and refinancing.

These are some of the main factors that caused the cooling off in the mortgage market in the last week of 2023. In the next section, we will look at how the mortgage market performed in 2023 overall and what factors influenced it. Stay tuned!