Purchase Demand Drops As Rates Increase

Mortgage purchase demand declined after seeing a boost last week, triggered by an increase in rates.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell by 7.7%, wiping out last week’s 7.4% increase.

The average interest rate for 30-year fixed loans rose to 6.39% from 6.28%. A year ago that rate was 4.05%.

Bad inflation news this week pushed rates higher. Inflation rose 0.5% in January, more than expected. Shelter costs accounted for roughly half of the month-over-month increase.

Retail sales also jumped in January, adding to the Fed’s big inflation headache as it tries to steer the economy to a 2% inflation rate.

“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,” said Joel Kan, MBA’s vice president and deputy chief economist.

Economists discussing retail sales suggested that the uptick could force the Fed to increase rate hikes despite speculation that it might be close to a pause.

The Fed increased interest rates by only a quarter-point at the last Federal Open Market Committee meeting, a cool-down compared to previous 50- and 75-point hikes.

“Although we have seen some moderation in recent months, the inflation rate remains far too high at 5 percent,” New York Fed President John Williams said in remarks to the New York Bankers Association this week.

“So, our work is not yet done. Inflation is still well above our 2% target, and it is critically important that we reach that goal.”

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