Market Update: December Economic Trends
As December 2024 unfolds, the housing market is navigating complex economic dynamics, from mortgage rate volatility to the Federal Reserve’s shifting approach to inflation.
Mortgage Rates
Mortgage rates have shown little clear direction over the past two weeks but remain high, continuing to weigh on housing activity. The yield spread between mortgage rates and the 10-year Treasury remains historically wide, with minimal change over the past few weeks. This suggests ongoing challenges for buyers seeking affordability and sellers looking to maintain competitive pricing.
Treasury Rates & Yield Curve
In the broader bond market, long-term Treasury rates are rising even as the Federal Reserve cuts short-term rates. This unusual dynamic stems from concerns over inflation control, potential tariff impacts, and deficit management. However, the steepening yield curve may also reflect a “soft landing” for the economy—a cautiously optimistic indicator for market stability in the months ahead.
Inflation Trends
Inflation remains a focal point, with November’s Consumer Price Index (CPI) rising 2.7% year-over-year and core inflation holding steady at 3.3%. While goods prices are flat to declining, inflation in services continues to climb at roughly 5%. With inflation still above the Fed’s 2% target, questions linger about whether the central bank is moving too quickly with rate cuts.
Federal Reserve Outlook
The Federal Reserve is widely expected to lower rates this December, with the longer-term outlook suggesting only two more cuts in 2025. Markets currently anticipate an overnight rate of 4.0% by the end of next year. The Fed’s updated “dot plot” and Fed Chair Powell’s remarks this week will be closely watched for signals about the path forward.
For real estate agents, today’s market requires creativity and adaptability. High rates are still a hurdle, but programs like rate buydowns or adjustable-rate mortgages can help clients navigate affordability challenges. Staying informed and providing thoughtful guidance will be key as we move through these economic shifts.