Mortgage rates are rebounding despite encouraging inflation data, as Federal Reserve policymakers warned that a “longer-term higher” rate strategy will remain in place until they see more solid evidence that the economy has cooled.
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The Mortgage Bankers Association’s (MBA) weekly survey of lenders showed demand for home-buying loans fell last week as mortgage rates rebounded, breaking a three-week streak of rising homebuyer demand.
MBA’s weekly application survey showed that on a seasonally adjusted basis, applications for purchase-to-buy mortgages fell 3% last week from the previous week and were down 12% from a year ago.
Mike Fratantoni
“Mortgage rates moved higher last week, surpassing the 7% mark, although the latest inflation data kept expectations of a rate cut from the Federal Reserve later this year alive,” MBA chief economist Mike Fratantoni said in a statement. Both new and existing inventories have increased over the past few months, but the number of purchase requisitions decreased in the last week of June. “
Interest rates on 30-year fixed-rate conforming loans have climbed again after falling from a 2024 high of 7.27% on April 25 to 6.81% in mid-June, rate lock data tracked by Optimal Blue shows.
Mortgage rates rebound
The average interest rate on a 30-year fixed-rate loan was 6.99% on Tuesday, up half a percentage point from the 2024 low of 6.50% on Feb. 1, according to Optimal Blue.
Despite encouraging inflation data, interest rates have been rising in recent weeks as Fed policymakers have warned that they prefer to stick with a “longer-term higher” rate strategy until they are confident they have tamed inflation.
Michelle Bowman
Hawkish Fed Governor Michelle Bowman told bankers on June 27 that much of last year’s progress on inflation was due to factors that are unlikely to help in the future, including supply chains. Restrictions eased and the number of workers grew, partly due to immigration and lower energy prices.
On Monday, investors in the bond market, which funds most mortgages, heeded warnings from financial analysts at firms including Goldman Sachs that interest rates on conforming, jumbo and Federal Housing Administration loans were surging. Trump’s proposed economic policies could reignite inflation and push up long-term interest rates.
More data shows inflation is cooling
The Fed’s preferred inflation gauge has been making steady progress toward the Fed’s 2% target since peaking at 7.1% in mid-2022.
The personal consumption expenditures (PCE) price index hit bumps in the summer of 2023 and February and March of 2024. %.
Core personal consumption expenditures, which exclude food and energy costs and serve as a more reliable indicator of underlying inflationary trends, have not deviated from the Fed’s 2% target since January 2023.
Economists at Pantheon Macroeconomics said in the July 1 “U.S. Economic Monitor” newsletter that May PCE data showed that the Federal Reserve “has taken enough measures” to curb inflation.
“After last week’s data, the consumer slowdown looks more entrenched and inflation is improving rapidly,” Pantheon economists wrote. “Both stories suggest the Fed is taking real risks as It said it intended to wait for more data before starting to ease policy.”
Since then, more evidence has emerged to support the argument that inflation is waning, including:
- A report from the Institute for Supply Management (ISM) showed that the manufacturing industry contracted for the 19th time in 20 months in June, and the service industry contracted by 5 percentage points from May to June.
- The U.S. Department of Labor reported on Wednesday that initial jobless claims rose by 4,000 to 238,000 in the week ended June 29. In the week ending June 8, initial jobless claims surged above 240,000 for the first time since August 2023.
Oliver Allen
“After surging to a nine-month high in May, the ISM (services sector) index plunged, sending it falling,” Pantheon senior U.S. economist Oliver Allen said in a July 3 email. to the lowest level since the COVID-19 lockdown in May 2020. “Admittedly, the overall index has not been a good reflection of the actual growth of consumer services spending over the past few years. Still, this report will support that growth is slowing. View.
Powell needs more evidence
Speaking at the European Central Bank’s monetary policy meeting in Portugal on Tuesday, Federal Reserve Chairman Jerome Powell said recent data did “show that we are back on a deflationary path.” But Powell reiterated past warnings that Fed policymakers want to see more evidence that inflation is falling steadily to 2% before cutting rates.
CME Group’s FedWatch tool, which tracks futures markets to predict the likelihood of future Fed moves, showed Wednesday that investors saw a 73% chance of at least one rate cut in September. That’s up from 69% on Tuesday and 59% on June 3.
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