LIVE MARKETS-Mortgage demand dips as rates stay elevated, goods trade gap at widest since March 2022

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MORTGAGE DEMAND DIPS AS RATES STAY ELEVATED, GOODS TRADE GAP AT WIDEST SINCE MARCH 2022

Two reports were released on Wednesday as a warm-up act for the Fed and for higher profile GDP and PCE data expected on Thursday and Friday.

Mortgage rates held firm last week but would-be borrowers dipped, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI refused to budge from its lofty, 7.02% perch.

This resulted in a 0.4% decrease in applications for loans to buy homes USMGPI=ECI and a 6.8% plunge in refi demand USMGR=ECI.

"New and existing-home sales ended 2024 on a strong note," says Joel Kan, MBA's deputy chief economist. "And if mortgage rates continue to stabilize and for-sale inventory loosens, we expect a gradual pick up in purchase activity in the coming months."

It is certainly true that new and existing home sales were stronger than expected in December.

But this is January and the 30-year fixed rate has been bobbing along north of 7% for much of the month, and is now 24 basis points warmer than it was during the same week last year.

Even so, purchase and refi applications are up 5.1% and 16.9% over the same time period.

In a separate, the Commerce Department released its sneak preview on some December data: goods trade balances and wholesale inventories.

The gap between the value of merchandise imported to the U.S. and goods exported abroad USGBAL=ECI widened in the closing months of 2024 by 18% last month to $122.11 billion, the steepest goods trade deficit since March 2022.

Not a great sign for fourth quarter GDP, due to be released tomorrow.

International trade has been a net drag on the U.S. economy for five of the last six quarters.

Exports dipped by 4.9% and imports increased by 3.9%, possibly as a result of moving purchases forward in the face of potential tariff increases.

Matthew Martin, senior economist at Oxford Economics, thinks that may be the case.

"The strength in imports was driven primarily by a surge in industrial supplies imports, which includes petroleum," Martin writes. "However, given the rise in oil price occurred towards the end of December, we expect much of this is related to front-loading ahead of potential tariffs rather than any price related noise from oil."

Be that as it may, while retail inventories inched 0.2% higher, the value of goods stacked in the warehouses of U.S. wholesalers USAWIN=ECI dipped by 0.5%.

(Stephen Culp)

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