Rates Decline as Signs of Cooling Inflation Become More Evident
Mortgage rates declined six basis points according to the Freddie Mac Primary Mortgage Market Survey released July 11th. Following last week’s June jobs report, which showed a cooling labor market, the 10-year Treasury yield decreased this week, and mortgage rates followed suit. There is also more inventory on the market, including a fair number of listings with price cuts, which is an encouraging sign for prospective buyers.
Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 5, 2024. “The prior week’s uptick in mortgage rates slowed demand. Mortgage applications were essentially flat last week,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications. Refinance applications decreased for the fourth consecutive week, in line with higher rates. Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates.”
Inflation fell further in June as lower gasoline prices combined with other easing price pressures to bring relief to consumers’ wallets. The consumer price index, a key inflation gauge, rose 3% in June from a year ago, down from 3.3% in May, the U.S. Labor Department reported Thursday. Perhaps the “most encouraging” news for consumers is that inflation for household necessities has cooled dramatically, said Mark Zandi, chief economist at Moody’s Analytics. “The prices for staples, food at home, gasoline, new-lease rents, they haven’t changed in about a year,” Zandi said. “People are paying the same for those staples today that they were a year ago.” He adds, “All indications are inflation has moderated, is back close to the Fed’s target and consistent with a rate cut in September.”
Inflation has come a long way since reaching a four-decade peak two years ago, Federal Reserve Chair Jerome Powell said Tuesday. However, central bank officials still want to see more progress before cutting interest rates, he noted, though they are also keeping a close eye on the job market. “We do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” Powell said in prepared testimony submitted to congressional lawmakers. During the hearing, Powell didn’t specify that cutting this year remains likely, or give any hint about the timing of the first rate cut, which is a departure from previous comments he’s made. “The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he added.
