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Homebuyer demand for purchase mortgages picked up last week for the first time in six weeks as mortgage rates retreated from 2023 highs on encouraging inflation data.

A weekly survey of lenders by the Mortgage Bankers Association shows applications for purchase loans were up by a seasonally adjusted 2 percent last week compared to the week before, but down 27 percent from a year ago. Applications to refinance were up 3 percent week over week but down 28 percent from a year ago.

It was the first increase in the MBA purchase mortgage index, which is adjusted for seasonal factors, since the week ending July 7, and the first increase in overall mortgage applications (including requests to refinance) since the week ending July 14.

During the week ending Aug. 18, the MBA index measured demand for purchase loans at the lowest level since April 1995 as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power.

“Purchase applications increased but were still 27 percent lower than a year ago, as elevated mortgage rates and tight housing inventory continue to weigh on home buying activity,” MBA Deputy Chief Economist Joel Kan said of the latest survey results. “The refinance market continues to be slow despite last week’s gain, which was driven by a 7.9 percent spike in conventional refinances. Government refinance applications dropped more than 10 percent last week.”

Mortgage rates retreat from 2023 highs

Black Knight’s Optimal Blue Mortgage Market Indices, which track daily rate lock data, show rates on 30-year fixed-rate conforming mortgages hit a 2023 peak of 7.30 percent on Aug. 22, the highest level recorded in data going back to 2017.

Although rates on jumbo mortgages too big for purchase by Fannie Mae and Freddie Mac continued to climb to a new 2023 high of 7.53 percent on Aug. 28, conforming mortgage rates have fallen by nearly 20 basis points to 7.13 percent on Tuesday. Rates on FHA loans, which hit a 2023 high of 7.10 percent on Aug. 22, have retreated back below 7 percent, averaging 6.96 percent Tuesday.

While Federal Reserve Chairman Jerome Powell delivered some tough talk on inflation Friday at the Jackson Hole Economic Symposium, yields on 10-year Treasurys — a barometer for mortgage rates — have also come down from a peak of 4.36 percent on Aug. 22 as markets digest whether the Fed might be done raising rates despite Powell’s hawkish tone.

10-year Treasury yield dips on job openings report

Source: Yahoo Finance

Fed policymakers have been particularly concerned about the impact that tight labor markets and rising wages have had on inflation. The latest Job Openings and Labor Turnover Summary (JOLTS) report, released by the Bureau of Labor Statistics on Tuesday, shows job opening edging down at the end of July by 338,000 to 8.8 million. The news sparked a rally in 10-year Treasurys, with yields falling 10 basis points to 4.12 percent Tuesday.

In a Wednesday bulletin to clients, economists at Pantheon Macroeconomics noted that the “quits rate” — which soared during the pandemic — has dropped back to pre-COVID levels, “pointing to a sustained slowing in wage growth.”

While the latest JOLTS report shows job openings dropping to a 27-month low that data probably understates the rate at which the economy is decelerating, Pantheon economists said in their Aug. 30 U.S. Economic Monitor.

“Mr. Powell’s continued focus on the job openings numbers is baffling to us, given the widely-documented problems with the data,” Pantheon economists said. “Posting jobs is cheap and easy, so firms can post positions on a speculative basis, willing to take an exceptional candidate but not necessarily actively looking for one.”

The JOLTS data is supposed to capture positions that companies are actively recruiting for and intend to fill within 30 days. “But no one is checking,” Pantheon economists said.

With the Federal Reserve having already implemented 11 interest rate hikes since March 2022, debate has largely shifted from whether the Fed will hike rates again, to how long it will wait before bringing rates back down in order to head off a potential recession.

After pausing in June, the Federal Reserve on July 26 raised its target for the federal funds rate to 5.25 to 5.5 percent, bringing the short-term benchmark rate to the highest level since 2001.

Futures markets tracked by the CME FedWatch Tool put the probability of another Fed rate hike on Sept. 20 at 11.5 percent, but investors put the odds that the Fed will lower rates in time for the spring homebuying season at less than even (39 percent).

Pantheon Macroeconomics forecasts yields on 10-year Treasurys will fall to 3.6 percent by the end of the year and to 3 percent by June. If that comes to pass and mortgage rates follow suit, by next summer lenders will be offering home loans at rates a full percentage point lower than today.

For the week ending Aug. 25, 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 7.31 percent, unchanged from the week before. But with points decreasing from 0.73 to 0.78 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $726,200) averaged 7.28 percent, up from 7.27 percent the week before. But with points decreasing to 0.66 from 0.84 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 7.10 percent, up from 7.09 percent the week before. But with points decreasing to 1.09 from 1.20 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
  • Rates for 15-year fixed-rate mortgages popular with homeowners who are refinancing averaged 6.72 percent, unchanged from the week before. But with points increasing to 1.11 from 1.06 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.48 percent, down from 6.50 percent the week before. But with points increasing to 1.20 from 1.03 (including the origination fee) for 80 percent LTV loans, the effective rate increased.

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Email Matt Carter

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