Applications Slip Again Ahead Of FOMC Meeting

Mortgage applications declined again last week as rates continued their upward march. 

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — fell by 2.3%, adding to last week’s 2.7% dip.

Adjusted purchase applications slipped by 2%, while the unadjusted index was down 1% and 14% lower YOY. 

Rates jumped to 7.29%, their highest point since November 2023.

“Inflation remains stubbornly high, and this trend is convincing markets that rates, including mortgage rates, are going to stay higher for longer,” said Mike Fratantoni, MBA’s SVP and Chief Economist. 

As buyers desperately seek ways to lower their monthly payments, ARMs clocked another strong week, accounting for 7.8% of applications. This is their highest level of the year.

“Prospective homebuyers are looking for ways to improve affordability, and switching to an ARM is one means of doing that, with ARM rates in the mid-6% range for loans with an initial fixed period of five years,” Fratantoni noted.

A recent survey from BMO Financial Group revealed that while the majority of Americans are still dreaming of owning a home, nearly three-fourths consider it out of financially out of reach.

More than 70% said they are waiting for rates to fall before entering the housing market. But lower financing costs are a pipe dream until the Federal Reserve cuts the benchmark rate, which is not guaranteed anytime soon.

At the beginning of 2024, analysts were hopeful that the Central Bank would cut rates in May. But several inflation indicators came in hotter than expected last month, forcing Wall Street to change its expectations. Most expect the FOMC to hold rates steady this time around.

“The Fed has said time and time again that inflation would be really difficult to tame, and they are more than willing to keep rates high until inflation becomes more manageable,” Jacob Channel, senior economist at LendingTree, told CBS MoneyWatch. “I understand why people are concerned, and perhaps a little upset, that the Fed isn’t chomping at the bit to cut rates.”

Refinances took a hit as rates rose, down 3% from the week prior and 1% YOY. They accounted for 30.2% of applications. In the past decade, they averaged 58% of all activity.

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