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Rising mortgage rates are limiting consumer appetite for both purchase loans and refinancing, and lenders have also tightened their underwriting standards for some products, particularly jumbo loans, according to data tracked by the Mortgage Bankers Association.
The MBA’s Weekly Applications Survey showed demand for purchase mortgages fell by a seasonally adjusted 7 percent last week compared to the week before, and that requests to refinance were down 26 percent over the same period.
Purchase loan demand was still up 7 percent from a year ago, and refi requests are up 111 percent from a year ago. But at this time last year, rates on 30-year fixed-rate loans were climbing toward a 2023 peak of 7.83 percent registered on Oct. 25.
After nearly falling below 6 percent last month, rates on 30-year fixed-rate mortgages have rebounded, averaging 6.41 percent Tuesday, according to rate-lock data tracked by Optimal Blue.
Joel Kan
“The recent uptick in rates has put a damper on applications,” MBA Deputy Chief Economist Joel Kan said in a statement. Refinance applications fell to their lowest level since August, “with comparable drops in both conventional and government refinances. This pushed the refinance share of applications back below 50 percent for the first time in over a month.”
A monthly survey by mortgage giant Fannie Mae showed consumer housing sentiment hit a 30-month high in September as mortgage rates were dropping to 2024 lows, but more than eight in 10 Americans still said it was a bad time to buy a home.
Kan said another MBA report that analyzes underwriting criteria showed credit “tightened slightly in September as lenders remained cautious in this uncertain economic environment.”
The MBA’s Mortgage Credit Availability Index (MCAI), which analyzes factors including borrower credit scores, loan types and loan-to-value ratios, found credit availability tightened by 0.5 percent last month.
The MCAI, which was benchmarked to 100 in March 2012, fell to 98.5, as standards for conventional loans eligible for purchase by Fannie Mae and Freddie Mac tightened by 1.7 percent, and jumbo lenders tightened standards by 2.6 percent.
“There was a decline in loan programs for cash-out refinances, jumbo and non-QM loans, including loans that require less than full documentation,” Kan said. “Most component indexes decreased over the month, but the government index increased, driven by more offerings of VA streamline refinances.”
While mortgages that exceed Fannie Mae and Freddie Mac’s conforming loan limit of $766,550 in most areas would have been considered jumbo loans a few weeks ago, a number of the nation’s biggest lenders have already raised their conforming loan limits in advance of higher limits expected to take effect Jan. 1.
Mortgage rates bounce
After hitting a 2024 high of 7.27 percent on April 25, rates for 30-year fixed-rate loans and other types of mortgages had been on the decline, with bond market investors anticipating Fed rate cuts this year and next.
But investors who fund most mortgage loans had priced in the Fed’s 50 basis-point rate cut on Sept. 18 and have been demanding higher yields after the latest “dot plot” revealed Fed policymakers are likely to bring rates down more slowly at future meetings.
An Oct. 4 jobs report that showed employers added 254,000 workers to their payrolls in September fueled the bounce in mortgage rates, as did last week’s Consumer Price Index (CPI) reading.
The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, showed inflation cooling to 2.24 percent in August — not far from the Fed’s 2 percent goal.
But the PCE index for September, which is derived from CPI and Producer Price Index (PPI) data, won’t be published until Oct. 31.
Friday’s PPI report showed gross margins for services rose modestly despite jumps in airline fares and insurance premiums, Pantheon Macroeconomics Chief U.S. Economist Samuel Tombs said in a note to clients.
“Declining inflation expectations, slowing growth in consumer demand and excess inventory will put more pressure on retailers to compete on price over the next year, exerting a drag on both core PPI and core PCE inflation,” Tombs predicted.
Pantheon Macroeconomics forecasts that the Fed will bring short-term rates down by another 75 basis points this year and that the central bank’s target for the federal funds rate will be a full two percentage points lower by May.
The CME FedWatch Tool, which tracks futures markets to gauge investor sentiment, shows most investors expect the Fed to cut by no more than 50 basis points in total at its final two meetings of the year.
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