Homebuyer demand dropped last week to the lowest level since October, with mortgage rates no longer moving down in sync with Fed rate cuts, according to lender surveys by the Mortgage Bankers Association.
After adjusting for holidays and seasonal factors, applications for purchase mortgages during the week ending Jan. 2 were down 14 percent from a 2025 high seen during the week ending Nov. 28, the MBA’s latest Weekly Applications Survey showed.
MBA purchase loan index
Source: MBA Weekly Applications Survey.
At 159.3, the MBA’s seasonally adjusted purchase loan applications index posted its fifth consecutive week-over-week decline, dropping to the lowest level since the week ending Oct. 17.
While the seasonally adjusted purchase index was still up 25 percent from a year ago, the MBA’s unadjusted purchase index showed homebuyer demand up by a more modest 10 percent.
Mortgage rates are range bound
Mortgage rates tracked by Optimal Blue dropped from 6.92 percent in May to a 2025 low of 6.12 percent on Oct. 28 as the Federal Reserve cut short-term interest rates 1/2 a percentage point in September and October.
Policymakers at the central bank approved their third 1/4 percentage point rate cut of the year on Dec. 10, but issued economic projections suggesting that they might cut rates just once next year. Mortgage rates have largely been range-bound since then, with Optimal Blue showing rates on 30-year fixed-rate loans averaging 6.16 percent on Tuesday.
Investors in mortgage-backed securities that fund most home loans are weighing the prospects of more Fed rate cuts next year. The CME FedWatch Tool showed futures market investors on Wednesday saw only a 12 percent chance of a Jan. 28 Fed rate cut, down from 25 percent on Dec. 5.
While the Fed has direct control over the short-term federal funds rate that banks charge each other for overnight loans, mortgage rates are determined largely by investor demand.
Rates for 30-year fixed-rate mortgages hit a 2024 low of 6.03 percent on Sept. 17 on expectations for Fed rate cuts. But when the Fed did start cutting short-term rates — by a full percentage point in the final four months of the year — mortgage rates went up by an equal measure as investors worried that inflation had yet to be tamed.
Forecasters at Pantheon Macroeconomics continue to expect three Fed rate cuts in 2026, as the jobs market weakens and inflation retreats.
The latest Job Openings and Labor Turnover Survey (JOLTS) data, released Wednesday by the Bureau of Labor Statistics, showed job openings shrank by 303,000 from October to November. A downward revision of 221,000 job openings in October brought the metric to its lowest level since September 2024.
Job openings trending down
At 7.146 million, job openings were down 41 percent from an all-time high of 12.134 million in March 2022, when the pandemic made hiring more difficult for employers.
Samuel Tombs
With unemployment rising and payroll growth slowing, the latest JOLTS data “suggests that the [Fed] still needs to ease policy further in order to prevent the unemployment rate from rising further and inflation eventually sliding below the 2 percent target,” Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.
While Fannie Mae economists expect rates on 30-year fixed-rate conforming loans to fall below 6 percent by the end of this year, MBA forecasters predict they’ll average 6.4 percent and only drop to 6.3 percent in 2027.
Dueling mortgage rate forecasts
Source: Fannie Mae and Mortgage Bankers Association December, 2025 forecasts.
Economist Doug Duncan, who has led the respected forecast teams at both Fannie Mae and the MBA, told Inman in December that tariffs and the end of 40 or 50 years of declining nominal interest rates add to the uncertainty of such forecasts.
Since dropping to 2.28 percent in April, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, has been moving away from the central bank’s 2 percent target, hitting 2.79 percent in September.
“Right now the discussion is all about tariffs, but tariffs are a relative price change that’s ‘one and done,'” Duncan said. “I don’t see the tariffs as the core cause of this. There’s an underlying inflation that was never cured before the tariff discussion started.”
Doug Duncan
Without clear evidence that underlying inflation is getting back to the 2 percent target, “I don’t expect to see mortgage rates break through [below] 6 percent” next year, Duncan said. “I’d be surprised. I think it’s more like 6 1/4 to 6 1/2.”
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