Mortgage Rates Hit Three-Week Low
On Thursday, mortgage rates dropped to a three-week low, following a decline in bond yields.
Recent data from the Bureau of Labor Statistics showing a slight easing in inflation since June has sparked optimism that the central bank might hold off on raising rates in its upcoming meeting on September 16.
This week’s Consumer Price Index (CPI) report is anticipated to be succeeded by the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) report. Analysts at Oxford Economics predict that the upcoming report, expected in about two weeks, will reveal a modest slowdown in inflation for July, following an unexpected increase in June. According to the CME FedWatch Tools, there’s a 65.4% likelihood that interest rates will remain unchanged at the next Fed meeting.
Mortgage rates tend to closely follow bond yields. Since the U.S. action against Iran in February, the 10-year U.S. bond yield has been on the rise. Over the past six months, it has surged by 20%, climbing from 3.9% on February 28 to 4.72% earlier this week.
Current mortgage rates have retreated to 4.64%, reflecting hopes for a possible deal regarding Iran and the potential for rising unemployment to influence the Fed’s monetary policy decisions.
This development may bring relief to homebuyers who have been waiting for lower mortgage rates for quite some time. As of August 12, the average 30-year mortgage rate stood at 6.67%, a decrease of 2 basis points from the previous week, according to Freddie Mac data.
Should rates continue to fall, there’s a chance that pent-up demand could begin to rebuild. The Mortgage Bankers Association reported a 3.6% increase in mortgage applications, after seasonal adjustments, compared to the prior week.
Joel Kang, CMB and Vice President at the MBA, noted that although mortgage rates had risen for five consecutive weeks, there was a slight downturn last week coinciding with a temporary drop in oil prices amid optimism for a resolution to tensions with Iran. While interest rate deferrals have encouraged purchase and refinance applications, Kang pointed out that overall application levels have lagged behind last year’s figures.
However, this positive outlook remains somewhat uncertain. Brian Sherwan, Vice President of mortgage bankers and brokers at Melissa Cohn Group, remarked that while July’s CPI report offers some hope, it doesn’t fundamentally alter the landscape. The real turning point for buyers may come with a definitive agreement on energy flow through the Strait of Hormuz.
Sarah DeFlorio, Vice President of mortgage lending at William Raveis Mortgage, echoed this sentiment, emphasizing the need for ongoing monitoring since any resurgence of conflicts in the Middle East could impact inflation. She cautioned that if inflation trends upward, it could lead to higher mortgage rates.
