Mortgage applications are picking up – The Daily Tearsheet

Vital Statistics:

Stocks are higher as markets anticipate rate cuts. Bonds and MBS are up.

Mortgage applications rose 11% last week as purchases increased 1% and refis rose 23%. On an YOY basis, refis are up 9% and purchases are up 17%. Things are getting better in the mortgage business.

“The 30-year fixed mortgage rate declined to 6.67% last week, which spurred the strongest week for refinance activity since April. Borrowers responded favorably, as refinance applications increased 23%, driven mostly by conventional and VA applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinances accounted for 46.5% of applications and as seen in other recent refinance bursts, the average loan size grew significantly to $366,400. Borrowers with larger loan sizes continue to be more sensitive to rate movements.”

Added Kan, “Given the relative attractiveness of ARM rates compared to fixed rate loans, ARM applications increased 25% to their highest level since 2022 and the ARM share of all applications was almost 10%. However, lower rates were not enough to entice more homebuyers back into the market, as purchase applications were only up around 1% over the week, although still stronger
than last year’s pace.”

Mortgage credit availability increased in July, according to the MBA. “Credit availability edged slightly higher in July, driven by increased availability of ARM loans,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “This development was consistent with a steeper yield curve and the jumbo-conforming spread back in negative territory. The average jumbo rate was around 8 basis points lower than the average conforming rate in July. Additionally, data from a separate survey showed that ARMs loan applications have picked up in recent months, although activity is still muted compared to historical averages. Credit availability of conforming loans declined slightly over the month, mostly due to a pullback in renovation loans.” 

Yesterday’s CPI report showed that tariff-driven inflation is evident, but its effect is small. Shelter was the biggest component of the increase, but its effect is waning. Below is a chart of the YOY increase in the shelter component of the CPI.

In January of 2020, CPI shelter was 3.35% and today it is 3.69%. It peaked at 8.17% in 2022. We are very close to normal pre-pandemic levels in the index. Note that with asking rents falling and home price appreciation waning, shelter inflation could begin to drag CPI lower. Note that some of the other big contributors to the CPI increase have nothing to do with tariffs: things like airline travel, used cars, dental services etc.

The September Fed Funds futures are pricing in a 100% chance for a rate cut, and the December futures are circling around 3 this year, which probably means September, October, and December. Whatever feared spike in inflation has yet to arrive, and the Fed’s stance of maintaining tight policy in the context of a deteriorating labor market is becoming untenable.

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