A sharp drop in mortgage rates has spurred more refinancing than home buying, and now rates are rising again, according to the Mortgage Bankers Association’s weekly survey of lenders.
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Mortgage rates rebounded this week as investors ruled out an emergency rate cut from the Federal Reserve and weighed whether fears of a recession were overblown.
The 10-year Treasury yield, a barometer of mortgage rates, climbed to nearly 4% on Wednesday, around where it was on Aug. 1, amid weak demand for government debt at a $42 billion Treasury auction.
After two surprisingly weak jobs reports last week led to a fresh 2024 low of 6.40% on Monday, the 30-year fixed-rate conforming mortgage rate rebounded 5 basis points on Tuesday to 6.45%, according to Rate Lock data by Best Blue track.
Since Fed policymakers signaled they were prepared to cut interest rates at their July 31 meeting, homebuyers with good credit have had the opportunity to lock in interest rates on conforming mortgages, FHA and jumbo mortgages. below 7%.
But falling mortgage rates have so far provided a greater incentive to refinance than to buy a home, according to the Mortgage Bankers Association’s weekly survey of lenders.
MBA’s weekly application survey showed that on a seasonally adjusted basis, purchase loan applications increased 1% last week from the previous week and were down 11% from a year ago. Refinancing requests are up 16% weekly and 59% higher than this time last year.
MBA deputy chief economist Joel Kan said in a statement that despite interest rates falling to their lowest levels since May 2023, there was only a small increase in purchase applications, with the increase in traditional purchase applications being largely offset by the FHA and VA. offset by a decrease in purchase applications.
Jane Joel
“The inventory for sale in some parts of the country has begun to gradually increase, and given the prospect of falling interest rates, homebuyers may wait for an opportunity to enter the market,” Kan said.
More than 8 in 10 household financial decision-makers said now is not the time to buy a home, according to a July Fannie Mae survey, but most did not foresee last week’s sharp drop in mortgage rates.
Doug Duncan
“While we see signs that affordability may improve in some parts of the country as supply slowly comes online, household incomes remain stretched relative to potential mortgage or rent payments, and our latest survey again reflects this. to reveal real consumer frustration with housing supply.
Mortgage rates near 2024 lows
Even after Tuesday’s rebound, 30-year fixed-rate conforming mortgage rates are still down 82 basis points from the 2024 high of 7.27% set on April 25, according to Optimal Blue.
Optimal Blue data lags a day, but lender data collected by Mortgage News Daily shows rates on 30-year fixed-rate loans surged again Wednesday, bringing a two-day rebound in mortgage rates to 24 basis points. A basis point is one hundredth of a percentage point.
Last week’s jobless claims and jobs report pushed the unemployment rate to 4.3% in July, triggering the “Sahm Rule,” an economic term named after economist Claudia Sahm Recession indicator.
But the Institute for Supply Management’s services PMI released on Monday showed that the service sector expanded in July, which is partly proof that the economy is cooling rather than contracting. Last week’s ISM manufacturing PMI also showed that the economy continued to expand for the 51st consecutive month in July.
Although investors still expect the Fed to start cutting interest rates at its meeting on September 24, rumors that the Fed may hold an emergency meeting before then have subsided.
“We have no doubt that the Fed will ease policy significantly in its remaining meetings this year,” economists at Pantheon Macroeconomics said in the latest U.S. Economic Monitor.
Forecasters at Pantheon expect the Fed to cut interest rates by 1.25 percentage points this year, while futures markets tracked by CME’s FedWatch tool predict a slim chance of rates falling by more than 1 percentage point this year.
Pantheon forecasters backed their view that deeper rate cuts are needed, predicting that a sharp drop in major stock indexes following last week’s jobs report and Japan’s financial turmoil could shake consumer confidence and weaken spending.
Pantheon economists said the Fed’s rate cuts are unlikely to be a panacea, “The Fed’s first few rate cuts will do little to increase disposable income for most mortgage holders, who have locked in very low interest rates during the pandemic; “They won’t refinance until interest rates come down significantly further.
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