Applications for home loans have surged for a second week in a row, but conforming mortgage rates edged up to 7% this week as investors weighed the possibility of a rate cut from the Federal Reserve.
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Homebuyer demand for interest rates picked up last week for a second straight week as mortgage rates fell to their lowest levels since March. But conforming mortgage rates fell back to 7% again this week as investors weigh the possibility of a rate cut by the Federal Reserve later this year.
Applications for home purchase loans rose 2% last week on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association’s weekly survey of lenders. Although this was the second consecutive week of growth in demand for buy-to-let mortgages, applications were still down 12% from a year ago.
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Refinancing applications for the week ended June 14 were about the same as the previous week, but were up 30% from the same period last year.
Mike Fratantoni
“Mortgage rates fell last week following the latest inflation and economic data [Federal Reserve] “At the 2019 meeting, the 30-year compliance rate fell to 6.94%, the lowest level since late March,” MBA chief economist Mike Fratantoni said in a statement Wednesday.
Federal Reserve policymakers left interest rates unchanged at their June 12 meeting, saying they needed more evidence that inflation is receding before cutting rates.
But the Fed can only directly control short-term interest rates. Investors in the bond market, which funds most mortgages, slashed long-term interest rates last week after seeing the latest consumer price index data, which showed inflation eased in May.
Mortgage rates fell again the next day on reports that jobless claims in May jumped to their highest level since August 2023 and on an unexpected drop in wholesale prices in May, which led to another decline in long-term rates.
Interest rates on 30-year fixed-rate conforming loans fell to 6.81% on June 13, down nearly half a percentage point from the 2024 high of 7.27% set on April 25, according to rate lock data tracked by Optimal Blue.
Mortgage rates rebound
But mortgage rates have been rebounding this week as some Fed policymakers, including the presidents of the New York, Boston, Dallas and St. Louis Feds, continue to stress that the Fed is seeking more data to confirm a rate cut. The current inflation rate is heading towards the 2% target, Reuters reported.
After climbing for three consecutive days, 30-year fixed-rate loan rates averaged 6.88% on Tuesday, Optimal Blue data showed.
Rates on 30-year fixed-rate loans rose back above 7% on Monday but have since leveled off, according to an index maintained by Mortgage News Daily.
(Daily Mortgage News reports higher rates because they adjust to the effective rate borrowers are offered, regardless of how many points they are willing to pay. Optimal Blue tracks contract rates, including for borrowers who pay points to get their loans Locked interest rate.
The next major move in mortgage rates could be triggered on June 28, when the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, is updated with May data.
PCE and core PCE trend downward
The PCE price index showed inflation fell to 2.65% in April, the first improvement since January. Core PCE, which excludes food and energy costs and better reflects underlying inflation trends, has been trending in the right direction for 15 consecutive months, falling to 2.75% in April.
Forecasters at Pantheon Macroeconomics predict that the PCE price index will show inflation cooling more sharply in May than many economists predict. Recent evidence that inflation will continue to ease includes:
Oliver Allen
“The sharp declines in total housing starts and building permits were surprising; both series reached a The lowest level since June 2020. “Lower interest rates will ultimately help sales, but we expect to be followed by a weakening labor market and rising unemployment, reducing the number of potential homebuyers. “
The latest unemployment data showed that the number of people filing for unemployment insurance fell slightly from the previous week to 238,000 in the week ended June 15. But the four-week average increased to 232,750, the highest level since September 2023.
“The Fed’s forecast that the unemployment rate will remain unchanged for the rest of the year looks incredible,” Pantheon chief economist Ian Shepherdson said in a note to clients Thursday. optimism.
Pantheon predicts the unemployment rate will rise to 4.5% by the end of the year, up from 4.0% in May.
While Fed policymakers have said they expect only one cut in short-term interest rates this year, futures markets tracked by CME Group’s FedWatch tool predict at least two cuts, with the first in September.
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