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Homebuyer demand for mortgages declined for the fourth consecutive week last week, even as a debt ceiling deal helped mortgage rates retreat from 2023 highs, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA’s weekly Mortgage Applications Survey shows requests for purchase loans fell by a seasonally adjusted 2 percent last week compared to the week before and were down 27 percent from a year ago. Requests to refinance were down 1 percent week over week and 42 percent from a year ago.

Joel Kan

“Overall applications were more than 30 percent lower than a year ago, as borrowers continue to grapple with the higher rate environment,” said MBA Deputy Chief Economist Joel Kan in a statement. “Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers. There was less of a decline in government purchase applications last week, which was consistent with a growing share of first-time home buyers in the market.”

Requests for FHA loans accounted for 13.2 percent of all applications, up from 12.7 percent the week before, while VA loan requests accounted for 12.5 percent of applications, up from 12.1 percent.

The Optimal Blue Mortgage Market Indices, which track daily rate lock data, show rates on 30-year fixed-rate conforming mortgages retreated to as low as 6.65 percent last week, down from a 2023 high of 6.85 percent seen on May 26.

But yields on 10-year Treasury notes, which can be a helpful indicator of where mortgage rates are headed next, surged Wednesday as bond market investors continue to gauge the likelihood of more Federal Reserve interest rate hikes this year.

For the week ending June 2, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $726,200 or less), rates averaged 6.81 percent, down from 6.91 percent the week before. With points decreasing to 0.66 from 0.83 (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 $726,200) averaged 6.74 percent, down from 6.78 percent the week before. With points decreasing to 0.56 from 0.76 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.73 percent, down from 6.85 percent the week before. With points decreasing to 1.15 from 1.26 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • Rates for 15-year fixed-rate mortgages averaged 6.25 percent, down from 6.41 percent the week before. With points decreasing to 0.62 from 0.84 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 5.93 percent, up from 5.39 percent the week before. Although points increased to 0.96 from 0.46 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.

Will Fed hike, skip or pause next week?

Since March 2022, Fed policymakers have approved 10 increases in the federal funds rate, bringing the short-term benchmark rate to a target of between 5 percent and 5.25 percent.

Last year the Fed was hiking rates in increments of 50- and 75-basis points, or half to three-quarters of a percentage point at a time. As the Fed gets closer to bringing the short-term benchmark to where it thinks it needs to be to bring inflation down, it’s implemented smaller, 25-basis point increases in February, March and May.

Now the question is whether the Fed will keep hiking rates when the Federal Open Market Committee wraps up a two-day meeting next week.

The CME FedWatch Tool, which monitors futures markets to gauge investor sentiment of the Fed’s next moves, puts the odds of another 25-basis point Fed rate on June 14 at only about 1-in-3, down from 67 percent a week ago.

But some influential Fed policymakers have been saying that even if they’re inclined to skip a rate hike next week, that doesn’t mean they’re ready to pause rate hikes altogether.

Speaking at a May 31 conference, Federal Reserve Gov. Philip Jefferson — one of 11 voting members of the Federal Open Market Committee — said that skipping a month would buy time to assess the impact of previous rate hikes.

“Since late last year, the Federal Open Market Committee has slowed the pace of rate hikes as we have approached a stance of monetary policy that will be sufficiently restrictive to return inflation to 2 percent over time,” Jefferson said. “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle. Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”

If the Fed’s rate hikes not only cool inflation but stall the economy and bring on a recession, as some economists expect, that’s likely to prompt policymakers to reverse course and begin lowering rates.

The CME FedWatch Tool shows that while futures markets had expected the Fed to begin lowering rates in the second half of this year, investors are now betting that the Fed won’t begin lowering rates until next year.

Fannie Mae economists say “extraordinarily tight” inventories of existing homes driven by mortgage lock-in effect has shifted demand toward new homes. Strength in new home construction and auto sales could yet help the economy manage a “soft landing” without a recession, and Fannie Mae economists no longer expect mortgage rates to fall below 6 percent this year as forecast in April.

Despite higher prices and mortgage rates, Fannie Mae’s research shows the vast majority of Americans still consider homeownership an important factor in living “the good life.”

Important factors in ‘the good life’

Results of a poll by Fannie Mae researchers published Tuesday found that 87 percent of Americans think owning a home is an important component of having a good life, with homeownership ranked as highly as having a happy marriage or romantic relationship.

“With many, including us, predicting a recession, the resiliency of consumers’ perceptions of homeownership relative to other investment options is noteworthy, especially during the previous three-year period of significant economic uncertainty,” Fannie Mae researchers said.

“The survey data shows that consumers see homeownership as helping to deliver on a sense of financial security, which was also tied as the primary factor associated with the ‘good life.’ In fact, homeownership has strongly persisted as a perceived leading source of financial benefits dating all the way back to 2010, when we began the National Housing Survey.”

Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter

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