Mortgage rates have been inching up from 2023 lows following a strong jobs report and January’s Consumer Price Index readout, which shows only a slight cooling in inflation.

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Rebounding mortgage rates cooled homebuyer demand for purchase loans last week and dampened interest in refinancing even more, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA’s Weekly Mortgage Applications Survey showed demand for purchase mortgages fell by a seasonally adjusted 6 percent last week compared to the week before and by 43 percent from the same time a year ago.

Applications to refinance existing mortgages were down 13 percent week-over-week and 76 percent from a year ago.

Joel Kan

“Mortgage rates increased across the board last week, pushed higher by market expectations that inflation will persist, thus requiring the Federal Reserve to keep monetary policy restrictive for a longer time,” MBA Chief Economist Joel Kan said in a statement.

Kan said the jump in mortgage rates dented mortgage applications for the second time in three weeks, bringing demand for purchase applications down to the lowest level since the beginning of this year.

“Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power,” Kan said.

Requests to refinance accounted for 32 percent of loan applications, down from 33.9 percent the week before. With rates for adjustable-rate mortgage (ARM) loans dipping slightly, the ARM loan share of total applications increased to 6.9 percent.

Mortgage rising from 2023 lows

Mortgage rates have been inching up from 2023 lows following a strong jobs report on Feb. 3 that surprised many economists, and Tuesday’s Consumer Price Index (CPI) readout, which showed inflation cooled only slightly in January.

According to loan lock data tracked daily by Optimal Blue, rates on 30-year fixed-rate conforming mortgages briefly dipped below 6 percent on Feb. 2, the day after the Federal Reserve’s last rate hike.

But rates for 30-year fixed-rate loans have since climbed by more than 40 basis points, reaching 6.44 percent on Tuesday. But the long-term trend remains positive for homebuyers, with rates still well below a 2022 high of 7.16 percent registered Oct. 24.

The Consumer Price Index shows prices inched up 0.5 percent from December to January and increased by 6.4 percent on an annual basis. That’s the smallest 12-month increase since October 2021, but still far above the Federal Reserve’s long-term goal of 2 percent.

The Fed’s favorite core inflation measure — the cost of services minus energy and housing — fell to an annualized rate of 4.5 percent in January, down from 5.3 percent in December, Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a note to clients Tuesday.

“This is the slowest rate of increase on this basis since January last year, but it won’t slow further unless the [month-over-month] prints soften,” Shepherdson said.

“In short, this report won’t change anyone’s mind about the inflation picture; both hawks and doves will find something to highlight,” Shepherdson concluded. “It does not change the very high likelihood of a 25 basis-point hike in March, and it says nothing about May; that’s too far off.”

The Fed’s 25 basis-point rate hike on Feb. 1 brought the short-term federal funds rate to a target range of 4.5 to 4.75 percent. Futures markets suggest that the odds are roughly even that Fed will keep hiking into June, which would leave the target for the federal funds rate at 5.25 to 5.50 percent, up 75 basis points from today.

The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, puts the odds of another 25 basis-point increase in March at 88 percent and calculates that there’s a 73 percent chance that Fed policymakers will raise rates by another 25 basis points in May.

For the week ending Feb. 10, the MBA reported average rates for the following types of loans:

  • Rates for 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less) averaged 6.39 percent, up from 6.18 percent the week before. With points increasing to 0.70 from 0.64 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased.
  • For 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200), rates averaged 6.26 percent, up from 5.96 percent the week before. Although points decreased to 0.43 from 0.55 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates 30-year fixed-rate FHA mortgages averaged 6.25 percent, up from 6.14 percent the week before. With points increasing to 1.14 from 0.88 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 15-year fixed-rate mortgages, rates averaged 5.85 percent, up from 5.64 percent the week before. With points increasing to 0.81 from 0.63 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • Rates for 5/1 ARM loans averaged 5.53 percent, down from 5.56 percent the week before. With points decreasing to 0.72 from 0.80 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

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Email Matt Carter

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