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Homebuyer demand for mortgages fell for the third week in a row last week as mortgage rates continued to rebound from December lows — a trend that’s continued this week after a discouraging inflation report.
The Mortgage Bankers Association’s (MBA) weekly survey of lenders showed demand for purchase loans fell by a seasonally adjusted 3 percent last week when compared to the week before, and applications were down 12 percent from a year ago.
While requests to refinance were also down 2 percent week over week, refi applications came in at a level 12 percent higher than a year ago.
Joel Kan
“Purchase applications remained subdued as elevated rates continue to add to affordability challenges along with still-low existing housing inventory,” MBA Deputy Chief Economist Joel Kan said in a statement. “Refinance applications declined and remained depressed, with rates still higher than a year ago.”
After mortgage rates retreated from 2023 highs in November and December, 2024 home sales looked poised to get off to a strong start, with applications for purchase mortgages trending up during each of the first three weeks of January.
Since then, however, with mortgage rates plateauing in January and rebounding this month, the MBA’s lender surveys show demand for purchase loans contracting for the last three weeks.
Mortgage rates on the rebound
At 6.83 percent Tuesday, rates on 30-year fixed-rate conforming mortgages were up 33 basis points from a recent low of 6.50 percent on Feb. 1, according to loan lock data tracked by Optimal Blue. That’s still a full percentage point lower from a 2023 peak of 7.83 percent, registered on Oct. 25.
A record number of Americans polled by Fannie Mae in January were expecting mortgage rates to come down even more in the year ahead.
But in the latest blow to those hoping for lower rates, the latest Consumer Price Index data release showed annual inflation remaining at 3.1 percent in January, thanks to stubbornly high shelter, motor vehicle insurance and medical care costs.
Consumer price index
While annual CPI improved from 3.4 percent in December, many forecasters had expected a more abrupt shift toward the Federal Reserve’s long-term goal of 2 percent. With the monthly increase of 0.3 percent in January exceeding December’s 0.2 percent move, Fed policymakers are no longer expected to start cutting rates in March.
Futures markets tracked by the CME FedWatch tool showed that as of Wednesday, investors put the odds of a March 20 Fed rate cut at just one in 10, down from an eight in 10 chance on Jan. 12.
Fed policymakers indicated in December that they expected to cut rates three times this year by a total of 75 basis points, a target futures markets predict will be accomplished by September.
In a note to clients Tuesday, Pantheon Macroeconomics Chief Economist Ian Shepherdson called January’s CPI data “a brief diversion, not a change of direction,” saying spikes in owner-equivalent rent, hospital services, lodging and airline fare are “unconnected, and [looking] much more like an unfortunate coincidence than anything to worry about.”
Forecasters at Pantheon are particularly confident that the spike in owner-equivalent rent will not be repeated, pointing to private sector rent data from Zillow which points to continued deceleration in rent increases.
Pantheon Macroeconomics forecasts that yields on 10-year Treasurys, which spiked to 4.32 percent on Tuesday, will fall to 3.75 percent by the end of March and drop by more than a full percentage point by the end of the year, to 3.25 percent.
With Optimal Blue data showing the “spread” on 30-year fixed-rate mortgages at about 2.5 percentage points above 10-year Treasury yields, a drop of that magnitude could bring mortgage rates well under 6 percent by year-end.
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