Mortgage demand cooled slightly last week as mortgage rates remained range-bound after Federal Reserve policymakers approved their third rate cut of the year but signaled they’ll take a cautious approach to further rate cuts.
Applications for purchase mortgages were down by a seasonally adjusted 3 percent last week compared to the week before, while requests to refinance were down 4 percent, according to a weekly survey of lenders by the Mortgage Bankers Association (MBA).
But compared to a year ago, purchase applications were up 13 percent, while demand for refinancing was up 86 percent, the survey found.
Mike Fratantoni
“Purchase application volume typically drops off quickly at the end of the year, and this shifts the mix of the business, with the refinance share reaching 59 percent last week, the highest level since September,” MBA Chief Economist Mike Fratantoni said in a statement. “However, refinance activity has remained mostly the same for the past month as rates continue to hold at around the same narrow range.”
Mortgage rates are range bound
Since hitting a 2025 low of 6.12 percent on Oct. 28, average rates for 30-year fixed-rate conforming mortgages haven’t climbed above 6.25 percent, according to lender data tracked by Optimal Blue. At 6.20 percent Tuesday, rates on 30-year fixed mortgages were down 85 basis points from their 2025 high of 7.05 percent registered on Jan. 14.
MBA purchase loan index
Source: MBA Weekly Applications Survey
At 176.5 for the week ending Dec. 12, the MBA’s seasonally adjusted purchase loan index was down 5 percent from a 2025 high of 186.1 registered during the week ending Nov. 28.
The purchase loan index, which has averaged 162.6 this year, hadn’t dropped below 180 since the second week in November.
After surging in April on fears that tariffs imposed by the Trump administration would rekindle inflation, mortgage rates had been on a mostly downward trajectory since late May, in anticipation that the Federal Reserve would start cutting rates to keep the economy from decelerating too quickly.
Policymakers at the central bank approved their third rate cut of the year on Dec. 10, but issued economic projections suggesting that they might cut rates just once next year.
New payroll and employment data released on Dec. 16 showed the unemployment rate ticking up to 4.6 percent in November, with 7.831 million Americans out of work.
Unemployment climbs to 4.6% in November
Although the latest numbers show the labor market remains weak, they’re not alarming enough to prompt the Fed to continue cutting rates in January, forecasters at Pantheon Macroeconomics said.
“The details of yesterday’s labor market report were more reassuring than the headlines,” Pantheon Macroeconomics economists Samuel Tombs and Oliver Allen said in their Dec. 17 U.S. Economic Monitor.
Most of the leap in unemployment from September to November appears to be due to the federal government shutdown, they said — which also kept the Bureau of Labor Statistics from publishing its monthly Employment Situation report in October.
Samuel Tombs
“People unemployed on temporary layoff accounted for 171,000 of the 228,000 increase in overall unemployment,” Tombs and Allen wrote.
“The unemployment rate will fall back to 4.5 percent in December, if the number of people on temporary layoff returns to September’s level.”
While payrolls shrank by 105,000 in October, that number was “driven entirely by a 162,000 drop in federal payrolls, as deferred resignation deals hit the numbers,” Tombs and Allen wrote. Employers added 64,000 net jobs in November.
The CME FedWatch Tool showed futures market investors on Wednesday saw only a 24 percent chance of a Jan. 28 Fed rate cut, up only slightly from 21 percent on Dec. 10.
But after the weak jobs report, futures market investors put the odds of a March 18 Fed rate cut at better than even (53.9 percent), up from 38.2 percent last week.
Oliver Allen
Last week’s 9–3 vote by Fed policymakers to lower interest rates was a “compromise deal, where some of the [inflation] hawks conceded this month to ease policy if the [Federal Open Market Committee] then took a rain-check in January,” Tombs and Allen concluded.
But if the Fed’s preferred measure of inflation — the core Personal Consumption Expenditures (PCE) index — starts to fall early next year, they predict “most FOMC members likely will question why they are still maintaining restrictive policy while the unemployment rate remains elevated.”
While the Fed’s latest Summary of Economic Projections suggests that many policymakers expect to cut rates just once next year and once in 2027, Pantheon Macroeconomics predicts the central bank will cut rates three times next year, with 1/4 percentage point cuts in March, June and September.
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
