L
et's explore whether higher mortgage rates have finally cooled down the housing market's fervor. The answer is more nuanced than a simple yes or no, so let's dig deeper.

    The recent wild ride of interest rates has been influenced by both the Federal Reserve and the bond market. While the Fed cut rates in September 2024 to boost borrowing, mortgage rates continued to rise. This might seem counterintuitive, but it highlights the complex relationship between the economy and interest rates.

    Strong economic indicators have led some experts to worry that rates could go even higher than predicted, potentially reaching between 5.75% and 7.25%. The mortgage spread, which is the difference between the interest rate on a mortgage and the yield on mortgage-backed securities, has actually been more favorable in 2024 compared to 2023, helping to keep rates from rising further.

    Despite higher rates, mortgage purchase applications have shown some resilience, with a recent six-week surge followed by a decline. However, year-over-year comparisons reveal that applications are still up 9%, albeit from a lower base. Pending sales and new listings provide a more complete picture: while pending sales are improving, the increase in new listings is in line with seasonal trends.

    The future of housing demand will depend on various factors, including Federal Reserve decisions, bond auctions, inflation reports, and the job market. While higher rates have had an impact, the housing market has shown some staying power. However, it's essential to monitor purchase applications closely, as they may soon indicate how higher rates are changing the market.

    In my opinion, this is a complex situation where higher mortgage rates are having an effect but not causing a total collapse. The market is adjusting, and we'll see how it plays out over the coming months. It's a challenging time for homebuyers, but it has become a buyer's market.