Welcome back to iLeads Mortgage Market Minute, where we bring you the latest, most relevant news regarding the mortgage market. We hope you enjoyed last week’s edition where we talked about Buyers Showing Renewed Interest in Condos. This week we’re bringing you:
COVID Concerns Drive Rates Lower, Refi Volume Rises*
Refinancing continues to support mortgage application activity while purchase applications continued to weaken during the week ended July 23. The Mortgage Bankers Association (MBA) says its Market Composite Index, a measure of mortgage loan application volume, increased 5.7 percent on a seasonally adjusted basis from the prior week and the unadjusted index was up 6 percent.
The Refinance Index rose by 9 percent although it was down 10 percent from its level the same week one year ago. The refinance share of mortgage activity increased to 67.2 percent of total applications from 64.9 percent the previous week.
The seasonally adjusted Purchase Index decreased 2 percent and the unadjusted Purchase Index ticked down 1 percent compared with the previous week. The latter was 18 percent lower than the same week in 2020.
“The 10-year Treasury yield fell last week, as investors grew concerned about increasing COVID-19 case counts and the downside risks to the current economic recovery. Refinance applications jumped, as the 30-year fixed mortgage rate declined to its lowest level since February 2021, and the 15-year rate fell to another record low dating back to 1990,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinances for conventional loans increased over 11 percent. With over 95 percent of refinancing applications for fixed-rate mortgages, borrowers are looking to secure a lower rate for the life of their loan.”
Added Kan, “The purchase index decreased for the second week in a row to its lowest level since May 2020 and has now declined on an annual basis for the past three months. Potential buyers continue to be put off by extremely high home prices and increased competition. The FHFA reported yesterday that May home prices were 18 percent higher than a year ago, continuing a seven-month trend of unprecedented home-price growth.”
The FHA share of total applications decreased to 9.1 percent from 9.6 percent and the VA share fell to 9.8 percent from 10.5 percent. The USDA share was unchanged at 0.5 percent. The average loan size increased from $343,800 to $357,700 and the purchase loan size rose from $401,300 to $404,200.
The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances of $548,250 or less decreased to 3.01 percent from 3.11 percent, with points down to 0.34 from 0.43. The effective rate was 3.11 percent.
Differences Between Previous and Current FOMC Statements*
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
progress with progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened. continued to strengthen. The sectors most adversely affected by the pandemic remain weak have shown improvement but have shown improvement. not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy will continue to depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well-anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.
Powell: “Ground to cover” before tapering asset purchases*
Short-term interest rates will remain near zero
The Federal Reserve today said that while the economy has “made progress” toward employment and price stability goals, it will not yet change its stance toward asset purchases, which has propped up the mortgage market.
Short-term interest rates will remain near zero, and the central bank said in a statement that it expects to keep that target until its labor market goals are met and inflation rises to 2% and is on track to moderately exceed 2% for some time.
In a Wednesday afternoon press conference, Federal Reserve Chairman Jerome Powell said there is still “ground to cover” in the labor market before the central bank tapers the $80 billion in bonds and $40 billion in mortgage-backed securities purchases. It has been making purchases since March of 2020.
Powell also said the central bank expects inflation, which has driven up the lumber, used car and hotel prices, to be “transitory.” That means the Fed does not expect price increases to increase unabated on a permanent basis, Powell explained.
Freddie Mac attributed the persistently low mortgage rates in part to growing concerns over the Delta variant. The Centers for Disease Control has said the Delta variant is much more aggressive and transmissible than the initial strain of COVID-19, and is now 83% of COVID-19 cases.
Powell, however, said that while a surge in Covid cases will have “significant health consequences,” each successive wave has had a diminished economic impact.
“What we’ve seen is with successive waves of Covid over the past year, there is less in the way of economic implications with each wave,” Powell said. “We will see if that is the case with the Delta variety.”
Mike Fratantoni, chief economist at the Mortgage Bankers Association, said that Powell’s remarks hinted that there is “potential for announcing a tapering plan is in the cards over the next few meetings.”
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