Rates for conforming loans pushed through 7 percent last week and continue to rise, as latest inflation data dims prospects that Fed will ease in June.
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Applications for purchase mortgages picked up last week as some would-be homebuyers were able to lock in rates before they surged to new 2024 highs, according to the weekly survey of lenders by the Mortgage Bankers Association.
The MBA’s Weekly Mortgage Applications Survey showed demand for purchase mortgages picked up by a seasonally adjusted 5 percent last week compared to the week before, but were down 10 percent from a year ago.
Applications to refinance were essentially flat, rising 0.5 percent week over week, but were up 11 percent from a year ago.
Joel Kan
“Rates increased for the second consecutive week, driven by incoming data indicating that the economy remains strong and inflation is proving tougher to bring down,” MBA Deputy Chief Economist Joel Kan said in a statement.
Kan said it’s possible that applications picked up because some borrowers decided to act in case rates continue to rise.
Separately, the MBA’s Builder Application Survey showed mortgage applications for new home purchases were up 6.2 percent in March when compared to a year ago, but hardly budged from February.
“March is typically a month when new home purchases see a seasonal boost, but this year March applications for new home purchases saw less than a 1 percent increase over the prior month on an unadjusted basis,” Kan said.
Would-be new homebuyers “remain adversely impacted by strong home-price growth and mortgage rates hovering around 7 percent,” Kan said.
Mortgage rates hit new 2024 highs
Loan lock data tracked by Optimal Blue shows rates on 30-year fixed-rate mortgages surged through the 7 percent threshold on April 10 and have continued to rise this week.
Borrowers were locking in rates on 30-year fixed-rate mortgages Tuesday at an average rate of 7.21 percent, up 71 basis points from a 2024 low of 6.50 percent registered on Feb. 1. Rates still have a ways to go before surpassing the 2023 high of 7.83 percent registered on Oct. 25.
Mortgage rates have been on a tear in April as economic data shows inflation is proving difficult to tame, dimming the prospects of Federal Reserve rate cuts anytime soon.
Consumer Price Index (CPI) data released on April 10 showed prices rising by 3.5 percent in March from a year ago, up from 3.2 percent annual growth in February.
The CPI report was followed by an April 15 data release showing surprisingly strong growth in retail and food services sales in March — and speculation that if the Fed doesn’t get inflation under control, it might even have to start raising rates again.
Speaking at a forum on the Canadian economy Tuesday, Federal Reserve Chair Jerome Powell said policymakers at the central bank think they’ve tightened enough but want to see the economy continue to cool before bringing rates down.
The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, is closer to reaching the Fed’s 2 percent inflation target but drifted up slightly to 2.5 percent in February. The March PCE numbers will be released on April 26.
PCE and core PCE trends
Another closely watched measure, core PCE inflation — which can be a more reliable indicator of underlying inflation trends because it excludes food and energy prices — hasn’t dropped much since falling to 2.9 percent in December.
“Inflation, of course, declined quite significantly over the second half of last year — over the whole year, but particularly in the second half,” Powell said Tuesday. “But 12-month core PCE inflation, which is one of the most important things we look at, is estimated to have been little changed in March over February at 2.8 percent, and the 3- and 6-month measures of inflation are actually above that level.”
Fed policymakers have repeatedly said they’ll need more confidence that inflation is moving sustainably toward 2 percent before they’ll be willing to cut rates.
“We took that cautious approach and sought that greater confidence so as not to overreact to the string of low inflation readings that we had in the second half of last year,” Powell said. “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
Futures markets tracked by the CME FedWatch Tool on Wednesday put the odds of a June Fed rate cut at just 16 percent, down from 59 percent on March 15.
But if inflation remains stubborn, Powell said Fed policymakers think they can tame it by leaving rates where they are, rather than having to resort to more rate hikes. From March 2022 through July 2023, the Fed hiked rates 11 times, bringing the short-term federal funds rate to a target of between 5.25 percent and 5.5 percent, the highest level since 2001.
In addition, the Fed has stopped buying Treasurys and mortgage-backed securities (MBS) and is letting up to $95 billion in maturing assets roll off its books each month — “quantitative tightening” aimed at trimming the central bank’s $7 trillion balance sheet.
“We think policy is well positioned to handle the risks that we face if higher inflation does persist; we can maintain the current level of restriction for as long as needed,” Powell said. “At the same time, we have significant space to ease should the labor market unexpectedly weaken. Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”
For the week ending April 12, the MBA reported average rates for the following types of loans:
- For 30-year fixed-rate conforming mortgages (loan balances of $766,550 or less), rates averaged 7.13 percent, up from 7.01 percent the week before. With points increasing to 0.65 from 0.59 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $766,550) averaged 7.40 percent, up from 7.13 percent the week before. Although points decreased to 0.46 from 0.56 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 30-year fixed-rate FHA mortgages, rates averaged 6.90 percent, up from 6.80 percent the week before. With points increasing to 0.99 from 0.93 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 15-year fixed-rate mortgages averaged 6.64 percent, up from 6.46 percent the week before. With points increasing to 0.64 from 0.60 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.37 percent, up from 6.27 percent the week before. With points increasing to 0.68 from 0.64 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
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