Hot inflation data sends mortgage rates to new 2024 highs

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Bond market investors who fund most mortgage loans are increasingly convinced the latest inflation numbers mean the Federal Reserve won’t cut rates in June.

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With would-be homebuyers already in retreat, mortgage rates soared to new 2024 highs Wednesday after yet another discouraging inflation report pushed the prospect of Federal Reserve interest rate cuts further into the future.

Applications for purchase loans were down by a seasonally adjusted 5 percent last week compared to the week before, and 23 percent from a year ago, according to a weekly survey by the Mortgage Bankers Association.

That was before Wednesday’s release of Consumer Price Index (CPI) data for March, which showed prices rising by 3.5 percent from a year ago, up from 3.2 percent in February.

The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, is closer to reaching the Fed’s 2 percent inflation target, dropping to 2.5 percent in March.

But yields on 10-year Treasury bonds, a reliable indicator of where mortgage rates are headed next, soared 19 basis points Wednesday, to 4.56 percent — the highest reading since November and a new 2024 high.

A lender survey by Mortgage News Daily showed rates on 30-year fixed-rate loans climbing 28 basis points Wednesday, to 7.34 percent. A basis point is one-hundredth of a percentage point, so a 28 basis point jump is more than one-quarter of a percentage point.

It was “basically the worst day for mortgage rates since October 2022,” MND’s Matthew Graham wrote.

“Hair splitting aside, there just aren’t many past examples of rates rising more than a quarter point in a day,” Graham lamented. “Before COVID, it had happened one other time in the past decade.”

The March CPI report “is much less alarming than it first appeared,” economists at Pantheon Macroeconomics said in their latest U.S. Economic Monitor report, with almost half of the rise in March core CPI services minus rent “due to a wild jump in auto insurance” premiums that’s unlikely to be repeated.

But bond market investors who fund most mortgage loans are increasingly convinced the latest inflation numbers mean the Federal Reserve won’t cut rates in June.

The CME FedWatch Tool, which tracks futures markets to assess the probability of future Fed moves, on Wednesday put the odds of a June rate cut at less than one in five (19 percent), down from 73 percent a month ago.

Mortgage rates were already moving higher last week “as several Federal Reserve officials reiterated a patient posture on rate cuts,” MBA Deputy Chief Economist Joel Kan said in a statement. “Inflation remains stubbornly above the Fed’s target, and the broader economy continues to show resiliency. Unexpectedly strong employment data released last week further added to the upward pressure on rates.”

With rates on the rise, the MBA’s lender survey showed requests to refinance jumped 10 percent last week from the week before and were up 4 percent from a year ago. Requests to refinance accounted for 33.3 percent of mortgage applications last week, up from 30.3 percent the week before.

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