Mortgage Applications Rise in Latest MBA Survey

Mortgage applications saw a significant increase of 16.8% for the week ending Aug. 9, 2024, according to the Mortgage Bankers Association (MBA). This growth was driven by a 35% rise in refinance applications, which also marked a 118% increase compared to the same week last year. The Purchase Index rose 3% from the previous week, although it was still 8% lower than a year ago. The surge in applications was attributed to lower mortgage rates, which spurred refinancing activity across conventional, FHA, and VA loans.

Refinance applications comprised 48.6% of total mortgage activity, up from 41.7% the previous week. Meanwhile, adjustable-rate mortgage (ARM) activity increased to 7.3% of total applications. Average interest rates for 30-year fixed-rate mortgages decreased slightly to 6.54% for conforming loans but increased to 6.78% for jumbo loans. Rates for FHA-backed loans remained unchanged at 6.49%, while rates for 15-year fixed-rate mortgages dropped to 5.96%. However, the average rate for 5/1 ARMs increased to 6.04%.

Inflation Rate Drops to 2.9% in July, Lowest Since 2021

In July, inflation rose by 0.2%, bringing the annual rate to 2.9%, mainly driven by higher housing costs. The core CPI, excluding food and energy, also increased by 0.2%, with an annual rate of 3.2%. Both figures met expectations, and inflation has reached its lowest level since early 2021. Shelter costs accounted for 90% of the overall inflation rise, while food prices saw modest increases and energy remained flat. Despite soft food inflation, some categories, like eggs, experienced notable price hikes.

As inflation drifts back toward the Federal Reserve’s 2% target, the likelihood of a rate cut in September has increased, though the Fed remains cautious about the pace of future cuts. The report highlighted mixed trends, with declining automotive prices contrasting with rising auto insurance and stubbornly high shelter costs. Meanwhile, some categories, such as medical care services and apparel, showed signs of deflation. Overall, the easing inflation is raising expectations for the Fed to begin cutting rates later this year.

Why Do Mortgage Rates Shift When Fed Rates Stay Unchanged?

Mortgage rates have been fluctuating despite the Federal Reserve keeping its interest rate, the federal funds rate, unchanged for the past year. The reason behind this volatility lies in several factors beyond the Fed’s rate. Mortgage rates are influenced by banks’ costs, inflation expectations, and investor behavior in the mortgage-backed securities market. Investors demand a higher return for riskier mortgage-backed securities compared to safer government bonds, like 10-year treasury bonds. As treasury yields fall, mortgage rates might also decline, potentially triggering a surge in homebuying and refinancing activity.

While lower treasury yields could eventually bring mortgage rates down, many factors influence the final rates borrowers receive, meaning the situation remains unpredictable for now.