Mortgage rates fell for the third straight week, down another eight basis points last week, and down a cumulative 35 basis points over the last seven weeks according to the Freddie Mac Primary Mortgage Market Survey released June 20^th. This follows signs of cooling inflation and changing market expectations of a future Fed rate cut. These lower mortgage rates coupled with the gradually improving housing supply bodes well for the housing market.

Mortgage applications increased 0.9% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Applications Survey for the week ending June 14, 2024. “Mortgage rates dropped last week following the latest inflation data and the FOMC meeting, with the 30-year conforming rate reaching its lowest level since the end of March,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase applications increased a small amount for the week, but is still more than 10% behind last year’s pace, but MBA is forecasting a pickup in home sales for the remainder of the year as more inventory is hitting the market.”

Retail spending was weaker than expected in May as consumers continued to wrestle with stubbornly higher levels of inflation. Sales rose just 0.1% on the month, one-tenth of a percentage point below the Dow Jones estimate, according to a Commerce Department report Tuesday that is adjusted for seasonality but not inflation. However, the result was slightly better than the downwardly revised 0.2% decline in April. The report comes with investors on edge about the direction of the economy and what that will mean for the future of monetary policy at the Federal Reserve. Consumer spending is responsible for about two-thirds of all economic activity, so any weakness could signal a retrenchment in growth while also pushing the Fed to begin cutting interest rates.

A chorus of Federal Reserve officials on June 18th emphasized the need for more evidence of cooling inflation before lowering interest rates, with a couple of policymakers offering insight into the potential timing of such a move. Fed governor Adriana Kugler said it will likely be appropriate for the central bank to cut rates “sometime later this year” if economic conditions unfold as she anticipates. St Louis Fed president Alberto Musalem said in his first major policy speech that it could take “quarters” for the data to support a cut. Both New York Fed president John Williams and Richmond Fed president Thomas Barkin demurred from offering a specific timeframe for the timing of a rate reduction, but all officials underscored the important role of economic data in the path of policy moving forward. Inflation snapped back in the first quarter of 2024, surprising Fed officials after a rapid cooling in price pressures in the second half of 2023. While recent price data has been encouraging, policymakers remain cautious.