Rates are Still Up, But Borrowers are Adapting.
Mortgage rates increased another five basis points from the prior week according to the Freddie Mac Primary Mortgage Market Survey released May 2nd. This is the fifth consecutive week of increases as we enter the heart of Spring Homebuying Season. On average, more than one-third of home sales for the entire year occur between March and June. With two months left of this historically busy period, potential homebuyers will likely not see relief from rising rates anytime soon. However, many seem to have acclimated to these higher rates, as demonstrated by the recently released pending home sales data coming in at the highest level in a year.
Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 26, 2024. “Inflation remains stubbornly high, and this trend is convincing markets that rates, including mortgage rates, are going to stay higher for longer. No doubt, this is a headwind for the housing and mortgage markets, with the 30-year fixed mortgage rate increasing to the highest level since November 2023,” said Mike Fratantoni, MBA’s SVP and Chief Economist.
The U.S. Federal Reserve held interest rates steady on Wednesday and signaled it is still leaning towards eventual reductions in borrowing costs but put a red flag on recent disappointing inflation readings that could make those rate cuts a while in coming. Indeed, Fed Chair Jerome Powell said that after starting 2024 with three months of faster-than-expected price increases, it “will take longer than previously expected” for policymakers to become comfortable that inflation will resume the decline towards 2%. “Inflation is still too high,” Powell said in a press conference after the end of the Federal Open Market Committee’s two-day policy meeting. “Further progress in bringing it down is not assured and the path forward is uncertain.”
U.S. manufacturing contracted in April amid a decline in orders after briefly expanding in the prior month, while a measure of prices paid by factories for inputs approached a two-year high. The Institute for Supply Management (ISM) said on Wednesday that its manufacturing PMI dropped to 49.2 last month from 50.3 in March, which was the highest and first reading above 50 since September 2022. A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.4% of the economy. Manufacturing is being constrained by higher borrowing costs and spending shifting back to services and away from goods. Spending on goods fell in the first quarter.
