Mortgage activity increased last week even as cost-of-living pressures intensify
Inflation jumped again last month as the Iran conflict took its toll on oil prices, but plenty of mortgage shoppers are pushing ahead with their homebuying plans even despite that uptick.
The annual inflation rate in the United States climbed to 3.8% for the 12 months ending April, the Bureau of Labor Statistics said Tuesday – but mortgage applications were up last week, according to the Mortgage Bankers Association, as buyers shook off an increase in mortgage rates.
Purchase applications were 4% higher over the prior week and 7% above their level from a year before, helping drive an overall 1.7% uptick in applications including refinances.
And Kurt Brandly (pictured top), president of Greenside Capital, told Mortgage Professional America most buyers simply aren’t using the threat of higher inflation as a reason to shelve their purchasing plans.
“I’d say that rates are still in a really good spot when it comes to purchasing and refinancing,” he said. “The real thing that’s been holding them down over the last year or year and a half is the spread. So we’re still seeing pretty good interest rates right now, even with the [inflation] print that wasn’t as good.”
That spread marks the difference between the 10-year Treasury yield, which strongly impacts borrowing costs, and average 30-year fixed mortgage rates.
The 10-year yield currently sits just below 4.48%, while 30-year fixed mortgage rates are averaging 6.46%, according to the MBA’s latest figures.
Borrowers are more likely to be concerned with the rate question than the inflation one – but that’s not to say they’ve tuned out entirely from the latest economic data and what it means for their chances of buying a home or refinancing, Brandly highlighted.
“When we do have that discussion with them, we definitely bring them up to speed on what the outlook is and how it’s changed over the last year,” he said.
How the new Fed chair could influence the rate – and inflation – outlooks
The latest inflation data will present a challenge for the Federal Reserve and its incoming chair Kevin Warsh, who’ll be expected to manage competing forces: the possibility of a further upsurge in inflation, and likely pressure from President Trump to move interest rates lower in the months ahead.
On Wednesday, mortgage industry leaders weighed in on Warsh’s expected imminent confirmation, with some urging the incoming Fed chair not to jeopardize the long-term rate outlook.
“We are hopeful that the appointment of Kevin Warsh as Fed chair will create stability for the industry,” said Stan Holland, president of Atlantic Bay Mortgage Group. “While some expect that, under his leadership, the Fed could lower short-term rates quickly, we hope that the long-term curve is kept in mind, as that has the biggest impact on homebuyers.”
Holland said quantitative easing and purchases of mortgage-backed securities (MBS) by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac could have a positive impact on mortgage affordability and boost the housing market.
Meanwhile, AnnieMac Home Mortgage chief executive officer Joe Panebianco said Warsh’s background in monetary policy made him an ideal candidate to navigate the current inflation headwinds.
“The mortgage industry depends on a healthy and predictable rate environment, and we are encouraged by the opportunity to engage with Chairman Warsh and other economic leaders on policies that can improve affordability, strengthen consumer confidence, and encourage long-term economic growth,” he said.
Industry caught in wait-and-see mode over rate future
It remains to be seen whether Warsh – who would also have to convince the rest of the Federal Open Market Committee (FOMC) to vote for rate cuts – will push ahead with efforts to move rates lower.
For now, Brandly's guidance to clients is to focus on what is known rather than what is projected.
"It's kind of hard to predict," he said. "So we're in a little bit of a gray area where we can't quite predict what the future is. [But] overall, interest rates are still near historic lows and in a good spot.”
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