Rate Increases Affect Mortgage Applications

Mortgage applications fell last week as rates hovered around 7%.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — slipped by 0.2%. The results include an adjustment for the Fourth of July.

Adjusted purchase applications increased by 1%, while the unadjusted index was down 19% and 13% lower YOY.

Rates have increased in the last couple of weeks following a brief downward trend. The average 30-year fixed rate actually declined last week, down from 7.03% to 7% flat, but remains too high to entice buyers back to the table.

“Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications. Refinance applications decreased for the fourth consecutive week, in line with higher rates. Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Refinances decreased 2% from the previous week but were up 28% from the same time last year. They accounted for 34.9% of applications.

Changes in federal monetary policy could lead to rates dropping by the end of the year.

Speaking to the Senate Banking, Housing and Urban Affairs Committee, Fed Chairman Jerome Powell testified that while monetary policy has directly impacted the housing market, inflation indicators are starting to turn in the Fed’s favor.

“For sure, monetary policy is having an effect on economic activity in the housing sector. But I would also say, the best thing we can do for housing is to succeed in getting inflation down to 2% on a sustainable basis so rates can come down, so the housing market can get back to what was the pre-pandemic normal, which is to say, still a housing shortage, but not dealing with the kinds of specific things we’re dealing with now,” Powell said.

Analysts see his comments as indicators of rate cuts to come.

“It appears as if the foundation is being laid for a pivot in September,” Christopher Hodge, chief economist for the U.S. at Natixis in New York, told Reuters.

CME FedWatch currently projects a 71.8% chance the federal funds rate will be cut in September.

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