Mortgage Rates Top 7% Amid Fed Hike, But Housing Market Resilient

U.S. mortgage rates jumped past the 7% mark last week to the highest levels since November, data from an industry group indicated Wednesday, as the Federal Reserve continues to signal more near-term rate hikes to tame inflation and slow the housing market.

The Mortgage Bankers Association said 30-year fixed rates for conforming loan balances of less than $647,200 rose 22 basis point to 7.07% for the week ending on July 7, a move that takes that headline rate to the highest level since May of 2006.

The so-called “jumbo rate”, which pegs mortgages that exceed Federal Housing Finance Agency limits of $726,200, also increased to a record high 7.04%, the MBA said. 

The MBA’s seasonally-adjusted Purchase Index, which tracks mortgage applications for the purchase of a single-family home, rose 1.8% from last week as buyers increased transactions despite the surge in borrowing costs, while new applications were up 0.9% for the week.  

The MBA said its refinancing index fell 1.3% ahead of Wednesday’s June inflation report, which is expected to show a sharp decline in consumer price pressures that could alter the Federal Reserve’s near-term interest rate path.

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“Incoming economic data continue to send mixed signals about the economy as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation,” said the MBA’s deputy chief economist Joel Kan. 

“The refinance index dropped to its lowest level since early June, as demand for rate/term and cash-out refinances remains extremely low with mortgage rates over 7%,” he added. “Purchase applications increased, but remained at a very low level and are 26% lower than the same week last year.” 

MBA Mortgage Market Index up .9% week/week, still near all time low activity in the home buying market with a few new sales keeping things moving for now.

— Don Johnson (@DonMiami3) July 12, 2023

The rate increase reflects changes in market forecasts toward another Fed rate hike later this month. That increases banks’ borrowing costs, which are then passed on to new and current mortgage customers.

Current projections suggest the Fed will lift its base lending rate, which currently sits between 5% and 5.25%, by another quarter-point on July 26, taking it to the highest levels since 2007. 

Fed  Chairman Jerome Powell has said that the central bank’s inflation fight will need to involve both higher rates of unemployment and a weakened housing market, both of which feed into consumer-price pressures in the form of higher wages and increased costs.

However, while higher mortgage rates have certainly blunted demand, recent data has suggested broader industry sentiment has improved.

May housing starts surged the most in 13 months, thanks to a 21.7% increase in single-family homebuilding, according to recent data from the Commerce Department. That puts the annual rate of new construction at around 1.631 million, a 291,000 increase from April that markets the biggest one-month gain since 1990.

Existing-home sales were up 0.2% in May, indicating an adjusted annual rate of 4.3 million units, although the average median price down 3.1% from a year earlier to $396,100, according to the National Association of Realtors. 

Pending home sales — a forward-looking indicator of demand based on contract signings — were down 2.7% in May, and 22% low from last year’s levels, but the NAR said that the “lack of housing inventory continues to prevent housing demand from being fully realized”, and noted that “the housing market is resilient with approximately three offers for each listing.”

Shares in Lennar Corp.  (LEN) – Get Free Report, one of the biggest U.S homebuilders, have risen nearly 36% so far this year and touched a record high of $126.06 late last month. Rival DR Horton  (DHI) – Get Free Report, meanwhile, has gained 32% so far this year and hit a record high of $123.05 on June 27.

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