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Mortgage rates and long-term Treasury yields have fallen back to levels not seen in two weeks after surging in the days leading up to last week’s Federal Reserve meeting on a series of worrisome inflation reports.
Tracked Loan Lock Data best blue It showed the average interest rate for borrowers locking in a 30-year fixed-rate mortgage on Tuesday was 6.76%, down 5 basis points from last week’s peak of 6.81% and down 17 basis points from the 2023 high of 6.93% on February 28.
Mortgage rates drop from Fed meeting levels
Similarly, 10-Year Treasury Bond Yield,A barometer On Wednesday, mortgage rates fell below 4.20% for the first time since March 14.
The Mortgage Bankers Association (MBA) reported Wednesday that homebuyer demand for purchase loans was essentially unchanged last week, with applications down 0.2% from the previous week after adjusting for seasonal factors. MBA’s weekly lender survey shows demand for purchase loans is down 16% from a year ago.
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Jane Joel
“Mortgage application activity remained muted last week despite a slight decline in mortgage rates,” MBA deputy chief economist Joel Kan said in a note. statement. “The 30-year fixed rate fell slightly to 6.93%, but that was not enough to spur borrower demand. Purchase applications were largely unchanged as homebuyers continued to hold out for lower mortgage rates and more listings.”
With interest rates still high, few homeowners have an incentive to refinance to get a lower rate, Kan said. Refi requests last week fell 2% from the previous week and 9% from the same period last year.
While the Fed has direct control over the short-term interest rates banks charge for overnight loans, interest rates on longer-term government bonds and mortgage-backed securities (MBS) are determined by supply and investor demand. The Fed has been a player in both investment markets, buying trillions of dollars in Treasury and mortgage-backed securities during the pandemic to keep borrowing costs low.
Fed shrinks $7 trillion balance sheet
Source: Federal Reserve System Board of Governors, Federal Reserve Bank of St. Louis.
Central bank policymakers kept short-term interest rates unchanged at last week’s meeting. But Fed Chairman Jerome Powell said they are also considering slowing the pace of shrinking the Fed’s $7 trillion balance sheet. A gradual slowdown in the pace of “quantitative tightening” could give mortgage rates additional room to fall.
Forecasters see more room for interest rates to fall
Source: Economist forecasts for March 2024 Fannie Mae and Mortgage Bankers Association.
in a Forecast for March 21MBA economists predict that 30-year fixed-rate mortgage rates will fall to 6.1% by the end of this year and average 5.6% in the fourth quarter of 2024.
“Lower interest rates should help free up additional inventory as the effects of lockdowns weaken, but we expect this will only happen gradually as we forecast rates to rise to 6% by the end of the year,” Kan said.
Fannie Mae economists had a more cautious outlook, predicting in a March 19 forecast that 30-year fixed-rate loan rates would not reach 6.0% by the fourth quarter of 2025.
Doug Duncan
Doug Duncan, chief economist at Fannie Mae, said: “As market expectations for future monetary policy continue to change, higher-than-expected inflation data and strong employment data may lead to higher mortgage rates this year than we previously forecast. Big upward pressure.” said of the forecast.
Fed policymakers said last week in a March 20 statement Economic Forecast Summary They still expect to cut short-term interest rates three times this year, by three-quarters of a percentage point.
Tracked futures market CME Group Fed Watch Tool This shows that investors do not expect the Fed to cut interest rates until June. The futures market on Wednesday predicted a 70.4% chance of one or more interest rate cuts before June 12, up from 57.8% on February 27.
As Fed policymakers insisted that any interest rate adjustments would be data-driven, the central bank’s announcement on Friday Preferred inflation indicatorThe personal consumption expenditures (PCE) price index will be closely watched.
PCE and core PCE trend downward
The overall PCE annual growth rate in January was 2.4%, which has been declining towards the Federal Reserve’s 2% target for four consecutive months. Core personal consumption expenditures (excluding food and energy costs) have been trending in the right direction over the past eight months.
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