Even as rates for the 30-year fixed product increased last week, likely in anticipation of today's Federal Open Market Committee announcement, mortgage application volume also pushed higher, the Mortgage Bankers Association said.
In fact, the 10-year Treasury yield — used to help price mortgages — closed at a 52-week high on Sept. 19, the first day of the FOMC meeting, at 4.37%. On Sept. 15, the last day in the MBA's Weekly Application Survey period, the yield closed at 4.32%, up 7 basis points from the prior week.
Most observers are expecting the FOMC not to raise short-term rates today, the second meeting out of the last three with no action. In July, it elected to hike rates 25 basis points.
"The totality of this year's active policymaking has meant homeowners — and the housing industry more broadly — will feel an acute squeeze from any continued aggressiveness," said Dan Burnett, head of investor product at Hometap Equity Partners, in a statement. "Following illusory hints this summer of a dovish tack for the rest of the year, we now must confront the impacts of an oscillatory policy instead, including where the neutral rate may land and just how much demand destruction might result in the meantime."
Inflation in most of the categories covered in last week's Consumer Price Index report was essentially flat, noted Ksenia Potapov, an economist at First American.
"Inflation is still high but shows signs of moderating," Potapov said in a statement. "September is a good time for the Fed to take a wait-and-see stance, leaving the option of one more rate hike, data dependent, by the end of the year."
This past week ended Sept. 15, however, demand was actually higher, as measured by the MBA's Market Composite Index. On an adjusted basis, application volume increased by 5.4% from the prior week. That week's activity included an adjustment for Labor Day.
The purchase index increased 2% seasonally adjusted over the prior period. Unadjusted it was 12% higher compared with the previous week but 26% lower than the same time one year ago.
"Mortgage applications increased last week, despite the 30-year fixed mortgage rate edging back up to 7.31% — its highest level in four weeks," said Joel Kan, MBA deputy chief economist, in a press release.
Even with the higher rates, refinance application volume also increased, up 13% week-over-week. But this was down 29% from the same period in 2022. The share of these applications submitted rose to 31.6% of total volume from 29.1% the previous week.
Another counter-intuitive stat was seen in the share of adjustable rate mortgage applications, which fell to 7.2% of total applications from 7.5%. Higher rates normally lead to more interest in ARMs from consumers.
And in fact, the one ARM rate tracked by the MBA, for the 5/1 product, was down 17 basis points from the prior week, to 6.42% from 6.59%.
The 7.31% rate for the conforming 30-year FRM that Kan spoke about was 4 basis points higher than 7.27% for the prior week.
The 30-year jumbo mortgage averaged 7.32%, up from 7.25%, and the average rate for the Federal Housing Administration-insured loan increased 4 basis points to 7.08% from 7.04%.
The FHA share was unchanged at 14.2%, while for Veterans Affairs-guaranteed loans, it declined to 11% from 11.3%.
For the 15-year FRM, the average rate fell 10 basis points to 6.62%.
Going forward, mortgage rates are likely to remain above 7%, Doug Duncan, Fannie Mae chief economist, said in an economic forecast released on Sept. 19.
"We expect that total housing market activity will remain at a low level into 2024 as the Federal Reserve continues to hold the line on interest rates against inflation," Duncan said in a press release.
In its Sept. 18 forecast, the Mortgage Bankers Association said the 30-year FRM will average 7% in the third quarter, but that will fall to 6.3% by the end of this year.
It will continue to trend downward for the next five quarters, reaching 5.4% by year-end 2024.
The organization is now forecasting $1.68 trillion in originations this year, down from $1.71 trillion in August, but the outlooks for 2024 and 2025 remained unchanged at $2.05 trillion and $2.36 trillion respectively.
Purchase expectations are approximately $13 billion lower versus August, while for refis, they are $12 billion less.
