The U.S. mortgage market hit a speed bump last week as rising interest rates pushed application activity lower, breaking a five-week streak of growth.

According to the Mortgage Bankers Association (MBA), total mortgage applications decreased 0.7% for the week ending Dec. 13, 2024, signaling persistent challenges for buyers and homeowners navigating high-rate environments.

The average interest rate for 30-year fixed-rate mortgages on conforming loan balances — up to $766,550 — rose from 6.67% to 6.75%, snapping three consecutive weeks of marginal declines.

"Mortgage rates increased last week, leading to overall mortgage application activity decreasing for the first time in five weeks," said Joel Kan, MBA's vice president and deputy chief economist.

"Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market," he added.

The Mortgage Refinance Index fell 3% from the previous week, but still remained 41% higher than the same period in 2023. VA refinance applications plunged 17%, offsetting gains seen in prior weeks.

Housing Affordability: Renting vs. Owning

Mortgage rates remain near 7%, while home prices have risen in all 97 major U.S. cities.

Bank of America examined the rent-versus-buy dilemma in 97 U.S. cities in a note to clients on Wednesday.

The result? In places like San Francisco, Los Angeles, and San Jose, mortgage payments now account for a staggering 60-70% of median family income, making renting the clear budget-friendly option, according to the investment bank.

"Regionally, it is still cheaper to rent than purchase for 82 out of 97 major cities in the US," analyst Jeseo Park wrote.

New Orleans, Pittsburgh, and El Paso are among the cities where it's cheaper to own than rent.

"The housing market is still stuck between high mortgage rates and low inventories," said Park.

"We've seen some relief with the Federal Reserve starting to ease monetary policy, but rates are unlikely to fall dramatically in the near term. Buyers should expect only mild improvements next year," she added.

With the mortgage spread hovering around 2-2.5 percentage points and Bank of America analysts forecasting a 10-year yield of 4.25% in 2025, mortgage rates are expected to stay around 6-6.5% next year.

"Given that many homeowners locked in low rates during Covid, a mortgage rate above 6% would still be too high to promote significant activity," Park stated.

Market Reactions

The iShares Residential and Multisector Real Estate ETF (NYSE:REZ) edged up 0.1% on Wednesday, following twelve losses in the past thirteen sessions.

The VanEck Mortgage REIT Income ETF (NYSE:MORT) climbed 0.5%, recovering from a 1.3% decline on Tuesday.

Stocks within the industry saw minimal movement as markets adopted a cautious, wait-and-see stance ahead of the upcoming Federal Reserve meeting.

Hannon Armstrong Sustainable Infrastructure Capital Inc. (NYSE:HASI) and New York Mortgage Trust, Inc. (NYSE:NYMT) were among the top gainers in the MORT ETF, rising 1.8% and 1.2%, respectively. Meanwhile, Ares Commercial Real Estate Corp. (NYSE:ACRE) was among the laggards, slipping 0.9%.

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