Rates Improve and Applications Increase as Inflation Cools Slightly
Mortgage rates continued their general downward trend last week, again falling another four basis points for the second week in a row and are now down twenty seven basis points over the past seven weeks according to the Freddie Mac Primary Mortgage Market Survey released June 13th. They continue to fall as incoming data suggests the economy is cooling to a more sustainable level of growth. Top-line inflation numbers were flat but shelter inflation, which measures rent and homeownership costs, increased showing that housing affordability continues to be an ongoing impediment for buyers on the house hunt.
Mortgage applications increased 15.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending June 7, 2024. “Mortgage rates were trending lower over the course of last week until a stronger than anticipated employment report resulted in a bounce back” said Mike Fratantoni, MBA’s SVP and Chief Economist. He added “Lower rates earlier in the week meant a strong increase in refinance activity, particularly for VA borrowers, who jumped on the chance to lower their rates. Multiple data sources are now indicating that home inventory levels, while still historically low, are up significantly from last year at this time. This is good news for many prospective homebuyers who have been frustrated by the lack of homes on the market.”
The Consumer Price Index showed no increase in May as inflation slightly loosened its stubborn grip on the U.S. economy, the Labor Department reported Wednesday. The CPI, a broad inflation gauge that measures a basket of goods and services costs across the U.S. economy, held flat on the month though it increased 3.3% from a year ago. Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago. Though the top-line inflation numbers were lower for both the all-items and core measures, shelter inflation increased 0.4% on the month and was up 5.4% from a year ago. Housing-related numbers have been a sticking point in the Federal Reserve’s inflation battle and make up a heavy share of the CPI weighting. “Finally, some positive surprises as both headline and core inflation beat forecasts,” said Robert Frick, corporate economist with Navy Federal Credit Union. “However, home and apartment costs continue to rise and remain the main cause of inflation. Until those shelter costs begin their long-awaited fall, we won’t see major drops in CPI.”
The Federal Reserve said Wednesday it is keeping its benchmark lending rate at its current level for the seventh time in a row, while signaling fewer rate cuts than previously estimated. Officials penciled in just one rate cut this year, according to their latest economic projections, compared to the three they forecast in March. They also expect inflation to be more stubborn this year than they thought in the spring, according to their forecasts. Fed Chair Jerome Powell noted that the May Consumer Price Index, released earlier Wednesday, was “certainly a better inflation report than almost anybody expected.” But he said officials still want to see inflation slow further before lowering borrowing costs. Central bankers are waiting for more evidence that inflation is headed toward 2%. The Fed will begin cutting interest rates once it’s clear that inflation has cooled enough and won’t heat back up, or if the job market deteriorates much more than expected, but there are currently not many signs of that.
