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Although fears of a recession are bringing mortgage rates down would-be homebuyers aren’t rushing to apply for loans, according to a weekly survey by the Mortgage Bankers Association (MBA).
The MBA’s Weekly Applications Survey shows demand for purchase loans fell by a seasonally adjusted 4 percent last week compared to the week before and was down 17 percent from a year ago. Requests to refinance were down 8 percent week-over-week and 78 percent from a year ago.
“Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower,” said MBA forecaster Joel Kan, in a statement. “Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed. Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”
Homes are less affordable than they’ve been since the mid-1980s when mortgage rates soared into the double digits, according to an analysis released Wednesday by data aggregator Black Knight.
Mortgage rates have been on the rise this year as the Federal Reserve gradually tightens monetary policy to fight inflation. Central bank policymakers are simultaneously raising short-term interest rates and trimming the Fed’s nearly $9 trillion balance sheet.
But since hitting a 2022 peak of 6.056 percent on June 14, rates on 30-year fixed-rate mortgages retreated below the 6 percent threshold as bond market investors who fund most mortgages weigh the Fed’s next moves.
Mortgage rates retreat
Rates on 30-year fixed-rate mortgages have dropped by 44 basis points over the last three weeks falling to 5.612 percent Tuesday, July 5, according to the Optimal Blue Mortgage Market Indices.
While the Fed doesn’t have direct control over mortgage rates, adjustments it makes to the short-term federal funds rate can also affect long-term rates.
The Fed has raised the federal funds rate three times since March 17 by a total of 1.5 percentage points. Half of that increase was implemented on June 15 when Fed policymakers ordered a 75-basis point increase, the largest in 28 years.
Bond markets that determine long-term rates have already priced in expectations the Fed will keep raising short-term interest rates at upcoming meetings in July, September, November and December. But if economic data shows that inflation is easing or that a recession is looming, the Fed could decide to slow the pace of short-term rate hikes reducing pressure on mortgage rates.
Bond market investors are looking for clues as to whether the Federal Open Market Committee will implement another 75-basis point increase in the federal funds rate when it concludes its next two-day meeting on July 27, or take less drastic action. Minutes of the committee’s June 14-15 meeting released Wednesday, reveal that policymakers are ready to take an even more aggressive stance on inflation if necessary.
Members of the committee “concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes said.
Yields on 10-year Treasurys, which often signal where mortgage rates are headed next, were up sharply Wednesday as investors digested the Fed’s hawkish stance.
The MBA reported average rates for the following types of loans during the week ending July 1:
- For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less) rates averaged 5.74 percent, down from 5.84 percent the week before. With points increasing to 0.65 from 0.64 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also decreased.
- Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 5.28 percent, down from 5.42 percent the week before. Although points increased to 0.44 from 0.28 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- For 30-year fixed-rate FHA mortgages rates averaged 5.60 percent, down from 5.62 percent the week before. With points decreasing to 0.89 from 1.15 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing, averaged 4.96 percent, down from 5.06 percent the week before. With points decreasing to 0.68 from 0.72 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
- For 5/1 adjustable-rate mortgages (ARMs) rates averaged 4.62 percent, down from 4.64 percent the week before. With points unchanged at 0.72 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.