Investors in the bond market, which funds most mortgages, are increasingly confident that the latest inflation data will mean the Federal Reserve will cut interest rates in June.
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Mortgage rates surged to fresh 2024 highs on Wednesday as would-be homebuyers retreated, after another dismal inflation report pushed the prospect of further rate cuts from the Federal Reserve into the future.
After seasonally adjusting, home loan applications last week fell 5% from the previous week and 23% from the same period last year. weekly survey By the Mortgage Bankers Association.
That was before Wednesday’s release Consumer Price Index (CPI) Data Prices rose 3.5% year-on-year in March, up from 3.2% in February.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, is closer to the Fed’s 2% inflation target, falling to 2.5% in March.
But the yield 10-Year Treasury BondA reliable indicator of where mortgage rates are headed next surged 19 basis points on Wednesday to 4.56%, the highest reading since November and a new high for 2024.
A survey of lenders by Mortgage News Daily shows interest rates 30-year fixed-rate loan It rose 28 basis points to 7.34% on Wednesday. One basis point is equivalent to one hundredth of a percentage point, so a 28 basis point increase is more than a quarter of a percentage point.
“This is basically the worst day for mortgage rates since October 2022,” MND’s Matthew Graham wrote.
“Hairs aside, there haven’t been many instances in the past where interest rates have risen by more than a quarter of a percentage point in a single day,” Graham lamented. “This was happening again in the past decade before COVID hit.”
Economists at Pantheon Macroeconomics said in the latest U.S. Economic Monitor that March’s CPI report was “far less concerning than it first appeared” and that almost half of the increase in core CPI services minus rent in March was “due to The huge jump in car insurance premiums is unlikely to be repeated.
But investors in the bond market, which funds most mortgages, are increasingly confident that the latest inflation data means the Fed will cut interest rates in June.
this CME Group Fed Watch ToolOn Wednesday, the agency, which tracks futures markets to gauge the likelihood of future action by the Federal Reserve, cut the likelihood of a rate cut in June to less than one in five (19%), down from 73% a month ago.
Mortgage rates have moved higher last week “as several Fed officials reiterated their patience for rate cuts,” MBA deputy chief economist Joel Kan said in a statement. “Inflation remains stubbornly above the Fed’s target and the overall economy continues to show resilience. Unexpectedly strong employment data released last week further increased upward pressure on interest rates.”
As interest rates rise, MBA’s lender survey showed a 10% increase in refinance requests last week compared with the previous week and a 4% increase from a year ago. Refinancing requests accounted for 33.3% of mortgage applications last week, up from 30.3% the previous week.
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