by Wolf Richter, Wolf Street:
Inflation might not go back into the bottle voluntarily, and these mortgage rates – considered low in 1970-2000 – might stick around.
The average conforming 30-year fixed mortgage rate rose to 7.0% in the latest week, according to the Mortgage Bankers Association today. The daily measure by Mortgage News Daily has been over 7% for days. These are the highest rates since mid-December, when they were on their way down. TRUTH LIVES on at https://sgtreport.tv/
Mortgage rates had been flirting with 8% back in October last year when the rate-cut mongers fanned out in droves all over the media. Amid enormous hoopla about a gazillion rate cuts in 2024, starting in January, longer-term yields plunged. Mortgage rates plunged with them, with the average 30-year fixed mortgage rate, as tracked by the MBA, falling as low as 6.75% in mid-January. And it was going to be the next boom in the housing market. And then inflation data came in and called for order.
Housing market still frozen.
That relatively small increase in mortgage rates caused mortgage applications to re-plunge – after they’d barely risen from the record lows going back to 1995 – a sign that the housing market remains frozen because prices are still too high, and potential sellers are still thinking that this too shall pass, and potential buyers have figured it out.
Mortgage applications to purchase a home plunged by 10% in the latest week from the prior week, seasonally adjusted, according to the MBA.
Mortgage applications were down by 9% from the already depressed levels in the same week a year ago. They were just a hair above the late-October record lows in the data going back to 1995. They’re down by:
- 2022: -47%
- 2021: -42%
- 2019: -43%
Mortgage applications to refinance a home plunged by 11% from the prior week, but that drop is barely visible amid the collapsed levels since mid-2022. Refinance applications were down by 89% from the same week in 2021:
Buyers’ strike continues.
There is always the issue that the hope of lower mortgage rates is freezing the market further, beyond what the far-too-high prices are already doing.
Inflation doesn’t look like it’s wanting to go back into the bottle voluntarily, but needs to be forced back into the bottle. If prior episodes with this type of inflation are any guidance, this will take years or maybe decades, interrupted by several massive inflation head-fakes where inflation goes down temporarily, leading to rate cuts, only to resurge to even worse levels, leading to even higher rates.
This idea that inflation will be back to 2% and stay there may turn out to be “transitory,” to borrow Powell’s infamous term. And then these higher mortgage rates are going to be with us for years, and maybe for decades, as they had been in past decades.
