Mortgage apps increase amid expectation of Fed’s pause in rate hikes

By Real Estate News

The expectation that the Federal Reserve might be done with hiking rates spurred the mortgage market last week. 

“Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth,” Joel Kan, Mortgage Bankers Association (MBA) vice president and deputy chief economist, said in a statement. 

The MBA data shows that mortgage applications increased 6.3% for the week ending May 5 from one week earlier. The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications. 

Borrowers’ demand followed a decrease in mortgage rates. The average 30-year fixed rate for conforming loans ($726,200 or less) fell to 6.48% last week from 6.50% the previous week. For jumbo loan balances (greater than $726,200), the rate declined to 6.33% from 6.37% in the same period, according to the MBA.   

At HousingWire’s Mortgage Rates Center, the Optimal Blue data showed rates even lower, at 6.43% on May 8, compared to 6.50% on May 1. The data is calculated using actual locked rates with consumers across 42% of all mortgage transactions nationwide.  

Mortgage rates reflect the expectation of the Fed’s next moves. On May 3, it raised its key federal funds rate by 0.25 bps to 5% to 5.25%. However, when announcing its decision, the Fed cut some language about inflation targets and spread hopes that it may pause the monetary tightening. 

Mortgage Loan types

According to the MBA, refinancing applications jumped 10% from the previous week but were 44% lower than the same week one year ago. Refis comprised 28% of the total applications last week, compared to 27.2% the prior week. Meanwhile, purchase apps increased 5% from one week earlier and were 32% lower than last year’s levels. 

“Lower rates from week to week have helped buyers in the market, but limited for-sale inventory remains a challenge for many homebuyers,” Kan said. “Refinance activity jumped to its highest levels since September 2022, although there is only a small pool of borrowers who can benefit from refinancing with rates at these levels.”

Regarding loan types, the adjustable-rate mortgage (ARM) share of mortgage apps decreased to 6.8% of total applications last week, the MBA data shows. 

The Federal Housing Administration share fell to 12.1% from 12.5% the week prior. The U.S. Department of Veteran Affairs loans share rose to 12.9% from 11.3% in the same period. And the U.S. Department of Agriculture loans decreased to 0.4% from 0.5% of the total applications.