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Mortgage Rates on the Rebound
Mortgage rates are on the rise despite encouraging inflation data, as Federal Reserve policymakers warn that they will maintain a "higher for longer" rate strategy until they see more conclusive evidence that the economy has cooled.
Demand for Purchase Loans Drops
According to the Mortgage Bankers Association (MBA), demand for purchase loans dropped last week as mortgage rates rebounded, breaking a three-week streak of rising homebuyer demand. The MBA’s Weekly Applications Survey showed applications for purchase mortgages fell by a seasonally adjusted 3 percent last week when compared to the week before, and were down 12 percent from a year ago.
Fed Policymakers Warn of "Higher for Longer" Rate Strategy
Federal Reserve policymakers are warning that they will maintain a "higher for longer" rate strategy until they see more conclusive evidence that the economy has cooled. This means that mortgage rates are likely to remain high for the foreseeable future.
More Data Shows Inflation is Cooling
Despite the Fed’s warnings, more data is emerging to support the thesis that inflation is waning. The personal consumption expenditures (PCE) price index, which is the Fed’s preferred gauge of inflation, has been making steady progress toward the Fed’s 2 percent target. The latest PCE index reading, released on June 28, showed the annual rate of inflation dropping for a second-consecutive month in May, to 2.56 percent.
Core PCE Remains Below Target
Core PCE, which excludes the cost of food and energy and can be a more reliable indicator of underlying inflation trends, hasn’t moved away from the Fed’s 2 percent target since January 2023. This suggests that inflation is likely to remain below target for the foreseeable future.
Manufacturing Sector Contracts
Reports from the Institute for Supply Management (ISM) showed the manufacturing sector contracting in June for the 19th time in the last 20 months. This suggests that the manufacturing sector is still struggling to recover from the pandemic.
Services Sector Contracts
The services sector, which is a larger part of the economy, also contracted by 5 percentage points from May to June. This suggests that the overall economy is still experiencing a slowdown.
Jobless Claims Increase
Initial jobless claims crept up by 4,000 during the week ending June 29, to 238,000. This is the highest level of jobless claims since August 2023.
Conclusion
In conclusion, mortgage rates are on the rise despite encouraging inflation data. The Fed is warning that they will maintain a "higher for longer" rate strategy until they see more conclusive evidence that the economy has cooled. Meanwhile, more data is emerging to support the thesis that inflation is waning. The manufacturing and services sectors are contracting, and jobless claims are increasing. These factors suggest that the economy is still experiencing a slowdown.
FAQs
Q: What is the current state of mortgage rates?
A: Mortgage rates are on the rise, with rates for 30-year fixed-rate loans averaging 6.99 percent as of Tuesday.
Q: What is the Fed’s current policy stance?
A: The Fed is warning that they will maintain a "higher for longer" rate strategy until they see more conclusive evidence that the economy has cooled.
Q: What is the current state of inflation?
A: Despite the Fed’s warnings, more data is emerging to support the thesis that inflation is waning. The personal consumption expenditures (PCE) price index has been making steady progress toward the Fed’s 2 percent target.
Q: What is the current state of the economy?
A: The economy is still experiencing a slowdown, with the manufacturing and services sectors contracting, and jobless claims increasing.
Q: What does this mean for homebuyers?
A: With mortgage rates on the rise, homebuyers may face higher interest rates and higher monthly mortgage payments. It’s important for homebuyers to stay informed and to work with a mortgage professional to navigate the current market conditions.
Author: www.inman.com
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