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Much to the chagrin of real estate agents, falling mortgage rates have made more homeowners interested in refinancing, but have done little to spur homebuyers into action.
According to the Mortgage Bankers Association (MBA) weekly survey of lenders, purchase-to-purchase mortgage loan applications fell 5% last week from the previous week on a seasonally adjusted basis and were down 8% from a year ago.
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MBA deputy chief economist Joel Kan said this is the weakest demand for mortgages from homebuyers since February, noting that home sales have slowed despite rising inventory levels.
Although refinancing requests fell 15% from the previous week, refinancing demand is still 90% higher than a year ago.
Jane Joel
“Even with lower mortgage rates, potential buyers may be more picky due to more choices,” Kan said in a statement.
But mortgage rates appear to have more room to fall, with the Federal Reserve expected to initiate rate cuts in less than a month.
Minutes of the July meeting of the Federal Reserve’s Open Market Committee released on Wednesday showed that last month, a “vast majority” of central bank policymakers had concluded that a rate cut “might be appropriate” if inflation data remained at the September 18 level. Anticipation comes in.
That was before two surprisingly weak jobs reports in early August, which prompted investors to buy mortgage-backed securities (MBS) as a hedge against a possible recession.
Federal Reserve Chairman Jerome Powell is likely to confirm that a September rate cut is possible when he delivers his annual speech at the central bankers’ conference in Jackson Hole, Wyoming on Friday.
Economists from Fannie Mae and the Mortgage Bankers Association agree that the Fed is poised to begin cutting interest rates next month and predict that 30-year fixed-rate mortgage rates will continue their downward trend , will fall below 6% by the fourth quarter of next year.
Annual employment benchmark data showed that the United States may have added 818,000 fewer jobs last year than previously expected, so interest rates may fall faster than forecasters expect.
Futures markets tracked by CME Group’s FedWatch tool show investors who fund most mortgages are already certain the Fed will cut interest rates next month. The question is no longer whether the Fed will cut rates, but how much.
The CME FedWatch tool showed that investors in the futures market on Wednesday predicted a 100% chance that the Federal Reserve would cut interest rates on September 18, and the probability that policymakers would lower interest rates by half a percentage point was about one in three (36.5%). basis points.
On July 19, the futures market believed that the possibility of a 50 basis point interest rate cut was only 4%. A 50 basis point cut would lower the federal funds overnight rate by half a percentage point to a range of 4.75% to 5%.
Pantheon Macroeconomics chief economist Ian Shepherdson still thinks a 50 basis point rate cut in September is unlikely.
Ian Shepherdson
“Presumably, the latest data will embolden doves and calm hawks, so we expect Chairman Powell on Friday to effectively confirm policy easing in September… although we think he will seek to reduce policy easing. [a 50 basis-point cut] And reiterated that the Fed relies on data and will not make decisions in advance,” Shepardson said in an email to clients. “We’re not sure who’s going to listen.”
Shepherdson believes that Fed policymakers will prepare to cut interest rates by 50 basis points in November and December, for a total of 1.25 percentage points this year.
The futures market believes that the probability that the Federal Reserve will significantly cut interest rates this year is only 33%, but the probability of three rate cuts totaling 1 percentage point is 77%.
Mortgage rates continue to fall
The 30-year fixed-rate conforming mortgage rate was 6.43% on Tuesday, down 84 basis points from the 2024 high of 7.27% recorded on April 25, according to rate lock data tracked by Optimal Blue. A basis point is one hundredth of a percentage point.
The rate is down 1.4 percentage points from the post-pandemic high of 7.83% on October 25, 2023.
Many borrowers who obtained loans at higher interest rates are already good candidates for refinancing.
In their latest forecast, Fannie Mae economists said they expect refinancing volumes to grow 51% this year to $374 billion and another 68% to $627 billion in 2025.
Economists at the mortgage giant don’t expect home sales to pick up significantly until next spring, but project sales will increase 8.5% next year to 5.19 million units.
CPI at lowest level since March 2021
After falling for four consecutive months to an annual rate of 2.9% in July, the consumer price index returned to its lowest level since March 2021. In the right direction.
The producer price index for final demand rose 2.2% in the 12 months through July, according to the Bureau of Labor Statistics.
The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, fell to 2.5% in June, just half a percentage point above the Fed’s 2% target.
The July PCE price index based on CPI and PPI reports is scheduled to be released on August 30.
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