An inflation report that came out Thursday morning within the market's expectations could portend good news for future mortgage rate movements.
However, with the benchmark 10-year Treasury yield remaining above 4%, albeit lower than seven days ago,
Its Primary Mortgage Market Survey put the 30-year FRM at 6.96% on Aug. 10, up from 6.9% one week ago. For the
At the same time, the 15-year FRM rose to 6.34% from 6.25% for the week of Aug. 3 and 4.59% last year.
"There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again," said Sam Khater, Freddie Mac chief economist, in a press release. "However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid."
The 30-year rates tracked in the Mortgage Bankers Association's Weekly Application Survey — conforming, jumbo and Federal Housing Administration —
"Mortgage rates trended higher last week, as financial markets responded to ongoing economic volatility and the downgrading of the U.S. government's credit rating," MBA President and CEO Bob Broeksmit said in a Thursday statement. "Both prospective buyers and sellers are feeling the squeeze of higher rates as well as low housing inventory, which has prompted a pronounced slowdown in activity this summer."
The Consumer Price Index increased by a seasonally adjusted 0.2% in July from June, the data released on Thursday noted. It rose 3.2% unadjusted versus July 2022.
"On an annual basis, shelter inflation in July slowed modestly to 7.7% from 7.8% in June," Odeta Kushi, deputy chief economist at First American Financial, said in a statement. "However, there's a known 12-month lag between observed rents and CPI rents, and observed annual rent growth has been moderating since the spring of 2022."
Overall, the report was good news, because inflationary pressures substantially eased from a year ago, said Nigel Green, CEO of financial advisor deVere Group.
"Even though the battle to tame inflation is being won, it's not over yet," Green said. "The Fed will want to be completely sure that inflation is fully under control and heading back to target before it even thinks about cutting interest rates — and we're not there currently."
Still, Green believes the latest CPI data will lead the Federal Open Market Committee to
Taking a more cautious approach regarding future FOMC actions is Marty Green, the principal at mortgage law firm Polunsky Beitel Green.
"We expect some of the more hawkish members of the Fed to focus on aspects of the report to justify more interest rate increases," Green said in a statement. "Fortunately, this report comes at a perfect meeting interval as the Fed will also receive an inflation report for August before their scheduled meeting in mid-September."
The 10-year Treasury yield on Aug. 3 closed at 4.19%, a one-day spike following the Fitch news, before dropping back down to 4.06% the next day. It closed at 4.01% on Wednesday, while so far on Thursday, the 10-year yield has remained in that area.
Zillow's mortgage rate tracker was at 6.8% on Thursday morning, down from the prior week's average of 6.89%, and was attributed to
"The latest employment report showed that hiring slowed in July and annual wage growth has declined by a full percentage point from a year ago," said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a Wednesday night statement prior to the CPI release. "The recent increase in labor productivity also means inflation is likely to moderate further — meaning mortgage rates could finally find their ceiling."
However, rates could rise if the U.S. Treasury goes ahead with increasing the size of the auctions of its portfolio holdings. The result might be an increase in yields on longer term bonds such as the 10-year Treasury, explained Divounguy.
The CPI data, as well as that of another metric, the Producer Price Index, coming out on Friday, could cause large swings in mortgage rates going forward, Divounguy added.
