The Fed doesn’t have direct control over mortgage rates, but they’ve been coming down as investors are increasingly convinced that policymakers will be cutting rates at their three remaining meetings this year.
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Would-be homebuyers are largely content to remain on the sidelines as more homes come on to the market and the Federal Reserve signals a rate cut next month. But the continued decline in mortgage rates is spurring more homeowners to refinance, according to a weekly survey of lenders by the Mortgage Bankers Association.
After adjusting for seasonal factors, requests for purchase loans were up by just 1 percent last week compared to the week before, and down 9 percent from a year ago, the MBA survey found. Requests to refinance were down 1 percent from the week before but up 85 percent from a year ago.
Joel Kan
“Mortgage rates declined for the fourth consecutive week, with the 30-year fixed rate at 6.44 percent, the lowest since April 2023,” MBA Deputy Chief Economist Joel Kan said in a statement. Rates have now come down more than 80 basis points from a year ago, Kan noted.
“As observed in recent weeks, despite lower rates, purchase applications have not moved much,” Kan said. “Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”
Mortgage rates have continued to fall, with rate lock data tracked by Optimal Blue showing rates on 30-year fixed-rate conforming mortgages dropping to a 2024 low of 6.34 percent on Monday.
Mortgage rates keep falling
That’s a 93 basis-point drop from a 2024 high of 7.27 percent registered on April 25, according to Optimal Blue. A basis point is one-hundredth of a percentage point. Rates on the workhorse 30-year mortgage have fallen by 1.5 percentage points from a post-pandemic high of 7.83 percent on Oct. 25, 2023.
An Inman-Dig Insights consumer survey in July suggested that rates might have to fall to 5.5 percent to provide a meaningful boost to home sales.
TAKE THE INMAN INTEL INDEX SURVEY FOR AUGUST
Although the Federal Reserve doesn’t have direct control over mortgage rates, they’ve been coming down as investors who fund most home loans are increasingly convinced that central bank policymakers will be cutting rates at their three remaining meetings this year.
Minutes of the Federal Reserve Open Market Committee’s July meeting released last week showed the majority of Fed policymakers viewed a Sept. 18 rate cut would “likely be appropriate” if inflation data kept coming in as expected.
That meeting took place before the release of two weak jobs reports at the beginning of August that triggered a recession warning and prompted investors to buy up mortgage-backed securities (MBS) as a hedge against a possible downturn.
Speaking in Jackson Hole, Wyoming, on Friday, Federal Reserve Chair Jerome Powell made the Fed’s intention to cut rates next month explicit, although he said the pace and magnitude of cuts would be data-dependent.
Powell’s Jackson Hole speech
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Futures markets tracked by the CME FedWatch tool showed investors on Wednesday were pricing in a 100 percent chance of a Sept. 18 Fed rate cut of at least 25 basis points, and a 75 percent chance that the Fed will bring rates down by a full percentage point by the end of the year.
“We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said Friday. “With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.”
CPI at lowest level since March 2021
After falling for four consecutive months to 2.9 percent annual growth in July, the Consumer Price Index is back to levels not seen since March 2021. Core CPI, which excludes volatile food and energy prices, has also been moving in the right direction since April, falling to 3.2 percent in July.
The Producer Price Index for final demand increased 2.2 percent for the 12 months ended in July, according to the Bureau of Labor Statistics.
The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, dropped to 2.5 percent in June from a year ago — just half a percentage above the Fed’s 2 percent target.
The PCE price index for July, which is derived from the CPI and PPI reports, is scheduled to be released Friday.
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