Mortgage Rates Continue to Decline, Federal Reserve Likely to Cut Rates In September
Mortgage rates declined to their lowest level since early February, decreasing 5 basis points from last week according to the Freddie Mac Primary Mortgage Market Survey released August 1st. Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind. Despite this, a recent moderation in home price growth and increases in housing inventory are a welcoming sign for potential homebuyers.
Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 26, 2024. “Mortgage rates were little changed last week, with the 30-year fixed mortgage rate unchanged,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “In recent weeks, there have been some small bursts of refinance activity, particularly for FHA and VA loans. Last week, VA refi application volume dropped sharply, which drove the aggregate result. Borrowers may be waiting for signs that mortgage rates will drift lower as the Federal Reserve begins to cut short-term rates. Purchase volume also dropped slightly because of ongoing affordability challenges.”
An important gauge for the Federal Reserve showed inflation eased slightly from a year ago in June, helping to open the way for a widely anticipated September interest rate cut. The Personal Consumption Expenditures price index increased 0.1% on the month and was up 2.5% from a year ago, in line with Dow Jones estimates, the Commerce Department reported Friday July 26h. The year-over-year gain in May was 2.6%, while the monthly measure was unchanged. Fed officials use the PCE measure as their main baseline to gauge inflation, which continues to run above the central bank’s 2% long-range target. “Overall, it’s been a good week for the Fed. The economy appears to be on solid ground, and PCE inflation essentially remained steady,” said Chris Larkin, managing director of trading and investing at E-Trade Morgan Stanley. “But a rate cut next week remains a longshot. And while there’s plenty of time for the economic picture to change before the September FOMC meeting, the numbers have been trending in the Fed’s direction.”
The Federal Reserve gave an important clue Wednesday that it will likely cut its benchmark lending rate in the coming months. While the central bank said it will continue to hold rates at current levels, Fed officials are now wary of any risks surrounding America’s labor market, which has long been a pillar of strength for the economy, according to their latest policy statement. Fed Chair Jerome Powell talked up inflation’s recent progress in his post-meeting news conference, saying “the second quarter’s inflation readings have added to our confidence, and more good data would further strengthen that confidence.” He also conveyed that since the job market seems to be back to a pre-pandemic normal, any additional cooling could be concerning for the Fed. Powell also doubled down on his point that determining when to cut rates will be “a very difficult judgement call.” There are consequences both if the Fed cuts too soon, and if it cuts too late.
