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Mortgage rates bounce back on strong employment and inflation data

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After a brief dip below 5 percent for the first time in four months, the 30-year fixed rate shot above that level this week.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average jumped to 5.22 percent with an average 0.7 point. (A point is a fee paid to a lender equal to 1 percent of the loan amount. It is in addition to the interest rate.) It was 4.99 percent a week ago and 2.87 percent a year ago.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from about 80 lenders across the country to come up with weekly national averages. The survey is based on home purchase mortgages. Rates for refinances may be different. It uses rates for high-quality borrowers with strong credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The 15-year fixed-rate average climbed to 4.59 percent with an average 0.7 point. It was 4.26 percent a week ago and 2.15 percent a year ago. The five-year adjustable-rate average rose to 4.43 percent with no points. It was 4.25 percent a week ago and 2.44 percent a year ago.

“Prices moderated a little bit in July, but the inflation report had little influence on mortgage rates, which were bound to bounce back after last week’s plunge,” Holden Lewis, home and mortgage expert at NerdWallet, wrote in an email. “Three facts are correct at the same time: Inflation is easing, the inflation rate is still far too high, and the Federal Reserve will most likely raise rates by a lot at its September meeting. In such an environment, mortgage rates will trend upward, with an occasional brief downward squiggle.”

The Labor Department released the consumer price index, a measure of what consumers pay for goods and services, on Wednesday. It showed annual inflation fell slightly last month from its four-decade high, rising 8.5 percent in July from the same month a year ago. On a monthly basis, the CPI was flat after more than two years of monthly increases.

Inflation eased in July from a year ago, as energy prices fell

The inflation data may cause the Federal Reserve to moderate its rate hikes. For most of this year, the Fed has been trying to tame inflation by raising the federal funds rate. It has raised the benchmark rate four times this year. It meets again next month to consider another increase. Fed Chair Jerome H. Powell has said the central bank wants clear evidence that prices are subsiding before slowing rate increases.

“CPI data shows that the impact of the Fed’s aggressive actions have started to play out,” said Robert Heck, vice president of mortgage at Morty, an online mortgage marketplace. “While mortgage rates have been reflecting the current state of inflation and the likelihood of more hikes for some time, we’ve seen the impact of new data and other announcements lessen somewhat over the past few months. The inflation news could be seen as a positive macroeconomic sign, but it shouldn’t spur significant changes in mortgages or the housing market, which have largely been adjusted to the new reality.”

Inflation tends to cause mortgage rates to rise, while a recession usually sends them lower. Much of the recent volatility in mortgage rates is due to investors waffling between worries about inflation and a recession. Last week’s jobs numbers gave a boost to the sentiment that a recession is not imminent. Data showed the unemployment rate dropped to a pre-pandemic low of 3.5 percent.

Employers added 528,000 jobs in July, shattering expectations

“Markets are seeking more certainty around the economic outlook, as incoming data continue to highlight a steady level of business activity and consumer spending,” said George Ratiu, manager of economic research at Realtor.com. “While concerns of a recession remain elevated, August seems to be offering a slight breather.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found the experts mixed on where rates are headed in the coming week. Forty-three percent say rates will go down, 29 percent say they will go up and 29 percent say they will stay about the same.

Greg McBride, chief financial analyst at Bankrate.com, expects rates to fall.

“The better-than-expected inflation news will provide some short-term relief to mortgage rates,” McBride said.

However, Jeff Lazerson, president of Mortgage Grader, predicts they will go up.

“Last week’s job report showed increased hiring,” Lazerson said. There is “more pressure on the Fed to raise short-term rates. Long-term rates will follow.”

Meanwhile, mortgage demand was up again last week. The market composite index — a measure of total loan application volume — increased 0.2 percent from a week earlier, according to Mortgage Bankers Association data.

The refinance index, which is more sensitive to rate drops, rose 4 percent from the previous week but was 82 percent lower than a year ago. The purchase index slipped 1 percent. The refinance share of mortgage activity accounted for 32 percent of applications.

“Mortgage applications increased for the second consecutive week, as a rise in refinancing offset a small decrease in purchase activity,” Bob Broeksmit, MBA’s president and chief executive, wrote in an email. “Mortgage rates have been volatile recently, allowing borrowers on some days to take advantage of a lower rate. Refinancing has now climbed for two straight weeks. Prospective home buyers continue to delay decisions on buying a home because of ongoing inflationary pressures, affordability challenges, and still-low inventory levels — especially at the lower end of the market. Purchase applications have now declined in five of the last six weeks.”

The MBA also released its mortgage credit availability index (MCAI) that showed credit availability declined in July. The MCAI fell 9 percent to 108.8 last month. A decrease in the MCAI indicates lending standards are tightening, while an increase signals they are loosening.

“Credit availability fell last month to the lowest level since May 2013, as lenders streamlined their loan offerings in this declining volume environment,” Joel Kan, an MBA economist, said in a statement. “The 9 percent decline in the July index was the largest monthly decrease since April 2020. Lenders have responded accordingly to the decrease in demand for refinance and purchase loans by reducing loan offerings, including for ARMs, cash-out refinances, and investment properties.”



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