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Rising mortgage rates continue to take a toll on homebuyer demand, with applications for purchase loans falling last week for the fourth week in a row, according to the latest lender survey from the Mortgage Bankers Association (MBA).
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The MBA’s Weekly Mortgage Applications Survey showed applications for purchase loans plummeted by a seasonally adjusted 10 percent last week when compared to the week before, and were down 13 percent from a year ago. Requests to refinance were down 11 percent from the week before, to about the same level as a year ago.
Mike Fratantoni
“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” MBA Chief Economist Mike Fratantoni said in a statement. “Mortgage applications dropped as a result, with a larger decline in refinance applications. Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”
For the week ending Feb. 16, 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 7.06 percent, up from 6.87 percent the week before. With points increasing to 0.66 from 0.65 (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 7.16 percent, up from 7.00 percent the week before. With points increasing to 0.45 from 0.39 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- For 30-year fixed-rate FHA mortgages, rates averaged 6.91 percent, up from 6.68 percent the week before. With points increasing to 1.03 from 0.89 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
- Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing, rates averaged 6.61 percent, up from 6.53 percent the week before. Although points decreased to 0.77 from 0.94 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
- For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.37 percent, up from 6.30 percent the week before. With points increasing to 0.71 from 0.60 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
Home sales seemed to be off to a strong start in 2024 as homebuyers took advantage of the big drop in rates in November and December and applications for purchase mortgages posted week-over-week gains during each of the first three weeks of January.
But with mortgage rates on the rebound in February, the MBA’s lender surveys show demand for purchase loans has contracted for the last four weeks.
Mortgage rates on the rebound
Mortgage rates remain nearly a full percentage point below a 2023 peak of 7.83 percent registered on Oct. 25. But after hitting 6.90 percent Tuesday, rates on 30-year fixed-rate conforming mortgages were up 40 basis points from a recent low of 6.50 percent registered on Feb. 1, according to loan lock data tracked by Optimal Blue.
A surprisingly strong jobs report on Feb. 2 put to rest speculation that the Federal Reserve would begin lowering short-term interest rates in March, economists said. Bond market investors who fund most mortgages lost some of their appetite for such investments, pushing long-term rates back up. The rebound in rates resulted in the biggest drop in pending sales since October, Redfin estimated.
In another blow to those hoping for lower rates, last week’s release of the latest Consumer Price Index (CPI) data showed annual inflation remaining stubbornly high at 3.1 percent in January, led by increases in the cost of shelter, auto insurance and medical care.
Consumer price index
Once they’re convinced inflation is firmly on course to hit their 2 percent target, Fed policymakers indicated in December that they expect to cut rates three times this year by a total of 75 basis points.
Futures markets tracked by the CME FedWatch tool showed that as of Wednesday, investors don’t expect the Fed to start cutting rates until June. But futures market investors still see better than even odds that the Fed will cut rates at least four times by the end of the year, bringing rates down by a full percentage point or more.
In their Feb. 21 U.S. Economic Monitor, economists at Pantheon Macroeconomics said they still expect the Fed to approve six rate cuts totaling 1.5 percentage points this year, starting in May.
“Fed officials doubtless feel vindicated after their pushback on the idea of a March rate cut, following the upside surprises to January payrolls, wages, the PPI [Producer Price Index], and the CPI,” Pantheon economists Ian Shepherdson and Oliver Allen wrote.
More recent downside surprises to retail sales and manufacturing output, they said, “can be rationalized — reasonably — as hits from the spell of severe weather across large parts of the country.” But by the time of the Fed’s May 1 meeting, winter weather effects “will have washed out” of the data, giving policymakers a clearer idea of the real state of the economy.
“We think the data will tell the Fed that it’s safe to start easing [in May], though policymakers doubtless will still want to sound cautious, and willing to reverse course if the data change for the worse,” Pantheon economists concluded.
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