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With 7.24M Americans out of work in July and payroll growth slowing to an average of 35K jobs a month, the Fed is expected to pivot from fighting inflation to preserving jobs
Upward pressure on mortgage rates didn’t stop homebuyers from shopping for bargains last week — and now rates are coming back down, according to lender application and loan lock data.
The Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey showed requests for purchase loans were up by a seasonally adjusted 2 percent last week when compared to the week before, and up 25 percent from a year ago.
“Purchase applications had their strongest week in over a month, and the average loan size increased to its highest level in two months at $433,400,” MBA Deputy Chief Economist Joel Kan said, in a statement. “Prospective buyers appear to be less sensitive to rates at these levels and are more active, bolstered by more inventory and cooling home-price growth in many parts of the country.”
Loan lock data tracked by Optimal Blue show rates on 30-year fixed-rate mortgages climbed to 6.63 percent last week before reversing course on Friday, after Federal Reserve Chair Jerome Powell said Fed policymakers are starting to see unemployment as a bigger risk to the U.S. economy than inflation.
That spurred investor demand for U.S. Treasurys and mortgage-backed securities that fund most home loans, pushing rates down.
Futures markets tracked by the CME FedWatch Tool showed investors on Wednesday pricing in an 89 percent chance of a Sept. 17 Fed rate cut, up from 65 percent on July 25.
Investors put the odds of three rate cuts totaling three-fourths of a percentage point by the end of the year at 40 percent, up from 20 percent a month ago.
Mortgage rates in retreat again
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At 6.53 percent on Tuesday, rates on 30-year fixed-rate conforming mortgages were approaching a 2025 low of 6.48 percent registered on April 4, and down half a percentage point from a 2025 high of 7.05 percent seen on Jan. 14.
Although the MBA’s Weekly Applications Survey showed requests to refinance were down 4 percent week over week, refi demand was up 19 percent from a year ago.
With 7.24 million Americans out of work in July and payroll growth slowing to an average of 35,000 jobs a month in May, June and July, the Fed is now expected to pivot from fighting inflation to preserving jobs.
Forecasters at Pantheon Macroeconomics predict that the unemployment rate will rise to 4.6 percent by the end of the year, and that the Fed will cut short-term interest rates by a full percentage point by the end of March.
But Pantheon forecasts that yields on 10-year Treasury notes, a barometer for mortgage rates, will only come down by about half that much (48 basis points) over the same period.
Details from the Conference Board’s latest survey of consumer sentiment and other indicators suggest employers probably added 75,000 jobs in August, “with all of that growth coming from the private sector,” Pantheon forecasters said in their latest U.S. Economic Monitor.