Mortgage rates are rising again. Are borrowers pushing ahead or stepping to the sidelines?
A dip in mortgage rates below the 7% mark has proven short-lived, with the average 30-year fixed-rate mortgage climbing above that level once again as applications fell last week.
That’s according to the Mortgage Bankers Association (MBA), whose Market Composite Index showed a 10-basis-point jump in that average rate compared with the previous week – bringing it to 7.03% and dimming hopes of a steady downward trend.
The increase arrived even despite indications that inflation is trending broadly in the right direction in the US.
The Federal Reserve’s favored inflation gauge slowed in May, according to new government data, spurring confidence that the central bank could be gearing up for a rate cut in the second half of the year.
Both purchase and refinance applications slid amid those higher rates, the MBA said, as the seasonally adjusted purchase index dropped by 3% week over week and the refinance index fell by 2%.
Opportunities and challenges remain for buyers in current market
Stubbornly high rates, and an unpredictable outlook where borrowing costs are concerned, have continued to weigh down on the US housing market’s performance in 2024 to date. While the MBA recently highlighted first-time buyer activity as a bright spot on the mortgage front, the landscape for new buyers is a “mixed bag” at present, according to a prominent industry professional.
Scott Valins (pictured top), chief executive officer and founder at GoRascal, told Mortgage Professional America that while some first-time buyers appear to have accepted that rates are unlikely to drop significantly in the coming months – causing them to push ahead with their purchasing plans – others are continuing to take a wait-and-see approach to the market.
Mortgage applications slipped 2.6% last week as rates rose above 7%. Despite hopes for a Fed rate cut, 30-year fixed rates reached 7.03%. Full details in MBA's latest report.https://t.co/Bozko5urDE
— Mortgage Professional America Magazine (@MPAMagazineUS) July 3, 2024
#MortgageRates #HousingMarket
That’s led to something of a split in homebuying intentions at present. “I do think you have a bit more confidence from those tepid first-time homebuyers but at the same time [for] a lot of them, even though they’re willing to take the first step and explore it, the math doesn’t make sense,” he said. “Or they’re just not in a rush.
“They’re not that desperate to move from one place to another and own a home and move into a larger place… I’m seeing a lot of patience, a lot of enquiries, questions, learning, but not so many [with] full conviction.”
Minutes from the Fed’s June meeting showed officials believed “greater confidence” in the inflation outlook was needed before they could countenance bringing rates lower.
Chair Jerome Powell echoed that sentiment this week, giving a cautious thumbs-up to cooling inflation but emphasizing further progress was required before any action on rates could take place.
He spelled out his thinking on rates at a central banking forum in Portugal. “The last reading and the one before it to a lesser extent suggest that we are getting back on the disinflationary path,” he said. “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”
Still, with expectations of at least one rate cut by the central bank before the end of 2024, Valins said many buyers appear to be waiting for such a move before jumping into the market.
“The narrative seems to be that the Fed’s going to cut eventually – once this year, twice this year, maybe,” he said. “And so I think a lot of people say, ‘I’ll wait for the Fed to cut and then I’ll get back into this thing and I’ll look at rates.’”
What’s in store for the remainder of the year?
While mortgage rates may be elevated for now – at least by the standards of recent years – growing confidence on the direction of inflation and a potentially softening Fed outlook could point to more positive times ahead for borrowers, Valins added.
“I feel like the second half of the year [could see] more refinance opportunities even if rates stay the same,” he said, “because a customer will say, ‘OK – it’s been a year now. This makes sense. Six months ago, I didn’t need to rush into it – I had just got my mortgage. It’s now been a year, it’s now been 18 months. So if I can get that half-a-percent lower rate that you quoted me, or 1% lower, let’s do it.’”
That’s not to say either purchase or refinance activity is likely to see a boom before the year is out, he added – even though they could experience a marginal increase in traction. “More inventory, hopefully steady or slightly lower rates, and a bit more refinance should make for maybe a better second half than the first half,” he said. “But I’m not expecting any big growth, a big pop in volume on the purchase or the refi side.”
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