Rates surged and then pulled back last week in what could foreshadow more election-year volatility in the months ahead. Jerome Powell tells Congress Fed will remain above the fray.
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Homebuyer demand for purchase mortgages picked up slightly last week after rates surged and then pulled back in what could foreshadow more election-year volatility in the months ahead.
Applications for purchase loans were up by a seasonally adjusted 1 percent last week compared to the week before, but fell 13 percent from a year ago, the Mortgage Bankers Association (MBA) reported Wednesday.
The MBA’s Weekly Applications Survey showed that while requests to refinance were down 2 percent week over week, refi applications were up 28 percent from a year ago.
“The recent uptick in mortgage rates has slowed demand. Mortgage applications were essentially flat last week, as mortgage rates remained around 7 percent,” MBA Deputy Chief Economist Joel Kan said in a statement. “Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications.”
Mortgage rates spiked for two days after the June 27 presidential debate, as bond market investors weighed the prospects that inflation might flare up again under a second Donald Trump administration.
After flirting with 7 percent, rates on 30-year fixed-rate conforming mortgages have been trending down again, as economic data fuels expectations that the Federal Reserve will start cutting rates in September.
Mortgage rates flatten
Rates for 30-year fixed-rate conforming mortgages averaged 6.88 percent Tuesday, according to rate lock data tracked by Optimal Blue. After hitting a 2024 low of 6.50 percent on Feb. 1, rates on 30-year fixed-rate loans had climbed to 7.27 percent on April 25 on fears that the Fed has yet to get a handle on inflation.
Testifying before Congress Tuesday and Wednesday, Federal Reserve Chair Jerome Powell sounded optimistic about recent job reports that suggest tight labor market conditions that helped fuel inflation are easing.
“Over the past two years, the economy has made considerable progress toward the Federal Reserve’s 2 percent inflation goal, and labor market conditions have cooled while remaining strong,” Powell said in his prepared remarks to the House and Senate. “Reflecting these developments, the risks to achieving our employment and inflation goals are coming into better balance.”
Powell testifies before House Financial Services Committee
But Powell said Fed policymakers want to see more evidence that inflation is “moving sustainably” toward their target of 2 percent before cutting rates, saying, “We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation.”
After Powell’s testimony, the CME FedWatch tool put the odds of a Sept. 18 rate cut at 73 percent, up from 50 percent on June 10. The tool, which tracks futures markets to predict future Fed moves, shows investors are betting there’s a 75 percent chance of at least two rate cuts totaling half a percentage point by the end of the year.
But as the election approaches, the Fed’s monetary policy is attracting additional scrutiny from some lawmakers, who worry about the potential for candidates to be helped or harmed by economic ups and downs.
New York Republican Rep. Mike Lawler suggested to Powell Wednesday that a September rate cut “could be viewed as political, just 30 or 60 days before an election.”
Powell — who was appointed as the Fed’s chair by Trump — assured lawmakers that the Fed’s decisions aren’t swayed by politics, saying, “This is my fourth presidential election at the Fed, and I can tell you, we come to work the next day and do our jobs.”
While many economists and investors expect mortgage rates to come down in the year ahead as the economy continues to cool, would-be homebuyers are less sure.
Only about one in four homeowners and renters polled by Fannie Mae in June (24 percent) expect rates to come down in the next 12 months, and 33 percent said they think rates will go up.
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Email Matt Carter