About four months ago, investors were convinced that the Federal Reserve would soon be cutting short-term interest rates. Most speculation focused on March as a likely starting date for the shift in monetary policy, but some believed that rates would be cut as soon as January of this year, and that there would be perhaps six or even seven reductions by the time 2024 came to a close.
That's no longer the case. A January move was always unlikely, and the possibilities of a March move mostly went out the window after the Fed's last get-together. After the January Fed meeting, it seemed most likely that a May cut in rates would be a fair certainty, but at least through this week, barely a majority of futures markets bets on policy now expect the first cut to come in June. and that there will now be only three (or perhaps four) rate cuts this year.
Despite recent modest declines, mortgage rates remain high. This has seemed to be somewhat less of a deterrent to potential borrowers of late, as applications for mortgages have perked up a bit. The Mortgage Bankers Association reported a 7.1% overall increase in requests for mortgage credit in the week ending March 8, powered higher by a 4.7% increase in applications for loans to purchase homes, but also surprisingly by a 12.2% increase in those to refinance existing loans. The highest mortgage rates in about 22 years occurred just about five months ago now, and the increase in refinancing may be folks looking to improve their interest rates by up to a full percentage point compared to then, and there is likely even a bit of cash-out refinancing going on, too, as homeowners look to extract some cash from deep equity positions.
The influential yield on the 10-year Treasury moved up by about a quarter percentage point over the last week, returning to someplace near mid-February levels. This suggests that mortgage rates will also return to those levels, and since those are about 20 basis points higher than they were last week, we'd expect to see a 15-18 basis point increase in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac this Thursday; the Fed's intimations will help determine where they head after that.