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Fears that mortgage rates were going to soar past 7% may have been assuaged Tuesday when Consumer Price Index (CPI) data for June showed cooling inflation. Interest rate traders responded swiftly by dialing back their expectations for a Federal Reserve rate hike later this month.
At HousingWire‘s Mortgage Rates Center on Tuesday, rates for 30-year conventional loans averaged 6.86% — up 9 basis points from one week ago. Rates for 30-year loans through the Federal Housing Administration (FHA) rose 10 bps to 6.45%, while rates for 30-year jumbo loans climbed 12 bps to 6.87%.
But housing professionals and consumers who were concerned about a return to 7% rates received positive news after the U.S. Bureau of Labor Statistics (BLS) reported that annual inflation dropped to 3.5% in June, down from 4.2% in May. The monthly decline of 0.4% was the largest pullback for the CPI since the start of the COVID-19 pandemic.
Stability for mortgage rates?
The impact of the inflation report was immediately visible in estimates for the federal funds rates. The CME Group‘s FedWatch tool showed that 88% of interest rate traders now believe benchmark rates will stay unchanged after the July 29 meeting of the Federal Open Market Committee (FOMC). That was up from 58% one day earlier.
Looking ahead to September, the odds of a rate hike or no movement are now evenly split. About 53% of surveyed traders say that a 25-bps increase will occur, while 40% say rates will stay in their current range of 3.5% to 3.75%.
“The Fed funds rate influences short-term borrowing costs, but the 10-year yield is the number homeowners should actually be watching,” said Kyle Bass, production business manager at Refi.com.
He pointed to Mortgage Bankers Association data showing a seasonally unadjusted rise in refi applications during the week ending June 26 when rates moved lower, followed by a sharp decline in refi demand the next week when they moved higher. Treasury yields moved in tandem, falling by 1% and increasing by 2% during the same two-week period.
“This surge-and-retreat pattern is what a window market looks like in practice, and it has defined refinance activity throughout the spring and into the summer. Borrowers who understand what moves rates are better positioned to recognize those windows when they open.”
Melissa Cohn, regional vice president for William Raveis Mortgage, said that the renewed conflict between the U.S. and Iran is likely to keep rates higher. Oil prices have started to reverse course after dropping significantly in recent weeks.
“Bonds are reacting more to the renewed military action in Iran. The Fed’s change in communication has not moved bond yields or mortgage rates,” Cohn said. “Right now, mortgage rates are going to move with oil prices, and oil prices are increasing, so rates will rise as well. Until there is a better resolution with Iran, we are stuck in a higher-for-longer rate environment.”
Will the ROAD Act help affordability?
Over the weekend, the housing market received another boost as the 21st Century ROAD to Housing Act became law. The package received deep bipartisan support from both chambers of Congress, but President Donald Trump refused to sign it as he sought congressional approval for the SAVE America Act, which targets voter identification and registration requirements.
Kimber White, president of the National Association of Mortgage Brokers (NAMB), was among those who celebrated the bill’s passage. For the mortgage industry, the ROAD Act could positively impact housing accessibility and affordability through multiple avenues — including limits on institutional investor home purchases, streamlined zoning and regulatory barriers driven by the Department of Housing and Urban Development (HUD), and a pilot program for small-balance mortgages.
“NAMB is thrilled to see the Road to Housing Act become law,” White said in a statement. “This legislation reflects years of collaboration, advocacy and dedication from policymakers, housing leaders, and industry professionals within NAMB who recognize the importance of creating a stronger, more accessible housing market for all Americans.”
Miki Adams, president of CBC Mortgage Agency, said the legislation addresses a major hurdle for many prospective homebuyers by making it easier to assemble the cash needed to close.
“Homeownership remains one of the most effective ways to build generational wealth, yet the upfront costs of buying a home continue to keep too many families on the sidelines,” Adams said. “The ROAD to Housing Act recognizes that down payment and closing cost assistance are the bridge between a loan approval and a set of keys. CBC Mortgage Agency appreciates the bipartisan effort toward solutions that help first-time buyers overcome affordability hurdles, so they can begin building equity sooner.
Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America, outlined several provisions in the ROAD to Housing Act that the ICBA and state community banking groups support.
Among other things, the bill allows community banks to hold custodial deposits and increased reciprocal deposits that aren’t considered brokered deposits, which are subject to restrictions; provides an 18-month exam cycle and other exam relief for institutions with up to $6 billion in assets; and creates a two-year pilot program to support the formation of de novo banks, particularly in rural areas.
“We thank lawmakers for prioritizing and enacting this bipartisan legislation, which will help community banks promote access to credit in local communities nationwide,” Romero Rainey said.
