Mortgage rates have dropped sharply. How will borrowers respond?

“Mortgage pricing should be down a tad today,” he said. “The 10-year yield is all over the map this morning, ranging between 4.11% to 4.18% as the stock market sells off more and more money is going into bonds.”

The Federal Reserve will hold its next meeting in two weeks, and although central bankers aren’t expected to change the federal funds rate, keeping it steady at range of 4.25% to 4.5% would been as a sign of stability for a housing market that has been volatile of late. The Fed kept rates unchanged in January, ending a streak of three straight cuts that totaled 100 bps.

The CME Group’s FedWatch tool on Tuesday showed that 89% of interest rate traders expect the Fed to keep rates unchanged after their March 19 meeting. But they’re much more bullish on changes in May as 45% are predicting a 25-bps rate cut.

The February jobs report, which will be released Friday, could signal the Fed’s direction. The consensus forecast calls for 160,000 new jobs to be added, up from the 143,000 additions in January. This would be a clear headwind to any further rate cuts.

Higher rates in January took a toll on refinance business as the prepayment rate dropped 16.1% from December to its lowest level in nearly a year, according to the newest Mortgage Monitor report from Intercontinental Exchange (ICE).

ICE also noted that home prices eased during the month in about one-quarter of the nation’s 100 largest markets. Among the 50 largest markets, six experienced price declines during the year ending in January. These were led by Sun Belt cities like Austin (-2.8%), Tampa (-2.6%), Jacksonville (-1.4%) and San Antonio (-1.3%).

Conversely, markets in the Northeast are witnessing the highest rates of appreciation. Fourteen cities saw yearly price growth of at least 5%, ICE reported, led by Buffalo, New York (+9.1%); Providence, Rhode Island (+8.7%); Hartford, Connecticut (+8.4%); and Cleveland (+6.8%).

Altos Research President Mike Simonsen wrote this week that “we’re a ways off still from a meaningful shift in housing demand trends.” Simonsen noted that the 60,000 pending sales of single-family homes are down 3% year over year even as the 639,000 homes available for purchase are up 28%.

“The takeaway from the pending sales numbers is that it takes roughly 35 days on average for sales to close, so homes in contract now will generally close in March,” Simonsen wrote. “We know there are fewer homes in contract than last year at the end of February so we have visibility that home sales for Q1 2025 will come in below Q1 2024.”

This runs counter to HousingWire’s forecast released late last year, which called for 2025 home sales to rise by 5%.

Although transaction activity continues to run lower than housing professionals would like, data released Monday by LendingTree shows that first-time homebuyers are, in a relative sense, thriving.

First-time buyers represented 61% of all mortgage offers on the LendingTree platform in 2024. This share was even higher in expensive states like New York (76.1%), California (70%) and New Jersey (69.2%). The company also reported that these buyers tend to have lower credit scores, down payments and loan sizes than repeat buyers.

“It makes all the sense in the world that most mortgage offers would go to first-time buyers today,” Matt Schulz, LendingTree’s chief consumer finance analyst, said in a statement.

“So many homeowners likely feel trapped because they bought their current place when rates were really low. They don’t want to trade their current low-rate deal for today’s much higher rates, so they just don’t move. First-time buyers don’t have that problem.”