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Discouraging inflation reports continue to push mortgage rates back up toward last year’s highs, dampening homebuyer demand just as the spring buying season gets underway, according to a weekly lender survey by the Mortgage Bankers Association.
The MBA’s Weekly Mortgage Application Survey shows demand for purchase loans remained at the lowest level since 1995 for the second week in a row last week. Requests for purchase loans were down a seasonally adjusted 6 percent from the week before and 44 percent from a year ago. Demand for refinancing was down 6 percent week over week and 74 percent from a year ago.
Joel Kan
“After a brief revival in application activity in January when mortgage rates dropped to 6.2 percent, there have now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month,” MBA Deputy Chief Economist Joel Kan said in a statement. “Data on inflation, employment, and economic activity has signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates.”
Mortgage rates started the year by continuing to retreat from 2022 highs. But rates have since reversed course following a strong jobs report and a Consumer Price Index reading which suggested inflation cooled only slightly in January.
Mortgage rates on the rise
Daily loan lock data tracked by Optimal Blue shows rates on 30-year fixed-rate conforming mortgages have climbed steadily from a 2023 low of 5.98 percent registered Feb. 2, hitting a 2023 high of 6.70 percent on Feb. 24. Last year, rates on 30-year fixed-rate loans peaked on Oct. 24 at 7.16 percent.
Although lower rates and unseasonably warm weather helped boost January pending home sales, “the recent drop in mortgage demand and the grim weather across much of the country in the past couple weeks point to a clear drop in pending home sales in February,” Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients Monday. “Housing market activity likely is close to the bottom, but extrapolating the January bounce into the idea that a strong recovery is underway is very risky.”
For the week ending Feb. 24, the MBA reported average rates for the following types of loans:
- Rates for 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less) averaged 6.71 percent, up from 6.62 percent the week before. With points increasing to 0.77 from 0.75 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
- For 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200), rates averaged 6.44 percent, unchanged for the week before. Although points decreased to 0.49 from 0.53 (including the origination fee) for 80 percent LTV loans, the effective rate remained unchanged.
- Rates for 30-year fixed-rate FHA mortgages averaged 6.45 percent, up from 6.39 percent the week before. With points increasing to 1.19 from 1.16 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 15-year fixed-rate mortgages, rates averaged 6.13 percent, up from 5.98 percent the week before. With points remaining at 0.93 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 5/1 adjustable-rate mortgages (ARMs) averaged 5.73 percent, up from 5.66 percent the week before. Although points decreased to 0.86 from 0.97 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
Federal Reserve policymakers approved a modest, 25 basis-point increase in the federal funds rate on Feb. 1, bringing the short-term benchmark rate to a target range of 4.5 to 4.75 percent.
Futures markets tracked by the CME FedWatch Tool predict a 69 percent chance that Fed policymakers will raise rates by another 25 basis points at their next meeting, which concludes on March 22.
After that, futures traders are pricing in a 54 percent chance that the target range for the federal funds rate will be raised to at least 5.50 percent by September, but that the odds are long that the Fed will raise short-term rates higher than 6 percent.
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