Regarding economic growth, inflation and the labor markets, very little has changed in recent months, but the perception of how the Fed will manipulate monetary policy seems to have changed a bit of late. Officially, the Fed is on track for perhaps three cuts in short-term interest rates this year; investors and forecasters have focused in on June as the likely first change for the federal funds rate.
All this presupposes that the trend in inflation the Fed wants to see comes to pass. Even with a couple of firmer inflation readings to start the year, Fed Chair Powell again noted this week that "The recent data do not materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down to 2% on a sometimes-bumpy path."
It would be nice if there was more upside in requests for mortgage loans, but that's just not the case now. The Mortgage Bankers Association reported a 0.6% decline in applications for mortgages in the week ending March 29. While a third consecutive decline, applications for funds to purchase homes slipped by just 0.1%, while those for loans to refinance existing mortgages dropped back by 1.6%, also part of a three-week slide. It'll take more than just lower mortgage rates to see mortgage activity kick meaningfully higher, but that would be a good place to start.
With what seems to be a little more unease in the possible direction for monetary policy overspreading the financial markets in the last week or so, interest rates have risen. The influential yield on the 10-year Treasury note has powered back up toward levels last seen in November, a time when mortgage rates were retreating from 22-year highs. At that time, the spread between the average mortgage rate and 10-year Treasury yield was considerably wider, running at about 290 basis points; recently, this has been closer to 250 basis points, so the expected uptick in mortgage rates will likely leave them at a level somewhat below where they were after Thanksgiving.
Still, mortgage rates can't escape rising from current levels this week. All indications are that a sizable bump can be expected, and likely one that lifts the average offered rate for conforming 30-year fixed-rate mortgage as reported by Freddie Mac back up to nearly the 7% mark. Rates may fall just short of the 18-basis point increase they need to get to 7% but it may be close.
All this presupposes that the trend in inflation the Fed wants to see comes to pass. Even with a couple of firmer inflation readings to start the year, Fed Chair Powell again noted this week that "The recent data do not materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down to 2% on a sometimes-bumpy path."
It would be nice if there was more upside in requests for mortgage loans, but that's just not the case now. The Mortgage Bankers Association reported a 0.6% decline in applications for mortgages in the week ending March 29. While a third consecutive decline, applications for funds to purchase homes slipped by just 0.1%, while those for loans to refinance existing mortgages dropped back by 1.6%, also part of a three-week slide. It'll take more than just lower mortgage rates to see mortgage activity kick meaningfully higher, but that would be a good place to start.
With what seems to be a little more unease in the possible direction for monetary policy overspreading the financial markets in the last week or so, interest rates have risen. The influential yield on the 10-year Treasury note has powered back up toward levels last seen in November, a time when mortgage rates were retreating from 22-year highs. At that time, the spread between the average mortgage rate and 10-year Treasury yield was considerably wider, running at about 290 basis points; recently, this has been closer to 250 basis points, so the expected uptick in mortgage rates will likely leave them at a level somewhat below where they were after Thanksgiving.
Still, mortgage rates can't escape rising from current levels this week. All indications are that a sizable bump can be expected, and likely one that lifts the average offered rate for conforming 30-year fixed-rate mortgage as reported by Freddie Mac back up to nearly the 7% mark. Rates may fall just short of the 18-basis point increase they need to get to 7% but it may be close.