Inflation Persists, Mortgage Rates Climb

Industry News,

Originally Published by: Builder Online — April 11, 2024
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Sustained inflation is driving mortgage rates closer toward 7%. For the week of April 11, the 30-year fixed-rate mortgage (FRM) averaged 6.88%, according to the Freddie Mac Primary Mortgage Market Survey (PMMS).

The 6.88% average is up slightly from 6.82% the week prior, according to Freddie Mac. A year ago, the 30-year FRM averaged 6.27%.

“Mortgage rates have been drifting higher for most of the year due to sustained inflation and the reevaluation of the Federal Reserve’s monetary policy path,” Sam Khater, Freddie Mac’s chief economist, says. “While newly released inflation data from March continues to show a trend of very little movement, the financial market’s reaction paints a far different economic picture.”

Khater says while the March inflation estimate of 3.5% is in the middle of the 3.1% to 3.7% range since June 2023, the market’s reaction to inflation data “was dramatically different.” Post-announcement, Khater says, there was a “significant drop” in the Dow Jones Industrial Average.

“It’s clear that while the trend in inflation data has been close to flat for nearly a year, the narrative is much less clear and resembles the unrealized expectations of a recession from a year ago.”

In response to rising rates, mortgage application activity remained relatively flat, according to the Mortgage Bankers Association. The MBA’s Weekly Mortgage Applications Survey increased 0.1% from the week prior for the week ending April 5.

“Inflation remains stubbornly above the Fed’s target, and the broader economy continues to show resiliency. Unexpectedly strong employment data released last week further added to the upward pressure on rates,” says Joel Kan, vice president and deputy chief economist of the MBA.

According to the MBA, the refinance index increased 10% from the previous week and was 4% higher than the same week a year ago. The seasonally adjusted purchase index decreased 5% on a week-over-week basis.

“Purchase applications were down almost 5% to the lowest level since the end of February, but refinance applications were up 10%, driven particularly by VA refinance applications,” says Kan.

The refinance share of mortgage activity increased to 33.3% of total applications from 30.3% the previous week. The overall share of adjustable-rate mortgages decreased to 6.9% of total applications.