Key facts
- Annual inflation fell to 3.5% in June, a significant decrease from 4.2% in May.
- Mortgage rates for 30-year conventional loans rose to an average of 6.86%.
- Traders now anticipate an 88% chance the Federal Reserve will hold rates steady at its next meeting.
- The 21st Century ROAD to Housing Act was signed into law, aiming to boost housing affordability.
- Geopolitical tensions in Iran are expected to influence mortgage rates, potentially keeping them elevated.
Mortgage rates saw an increase this week, with 30-year conventional loans averaging 6.86%, up 9 basis points from the prior week. This rise occurred despite a significant cooling in June inflation, which saw the annual Consumer Price Index (CPI) drop to 3.5% from 4.2% in May. The monthly inflation decline of 0.4% was the largest since the start of the COVID-19 pandemic.
The positive inflation data led interest rate traders to revise their expectations for Federal Reserve policy. The CME Group's FedWatch tool indicated that 88% of traders now believe benchmark rates will remain unchanged after the July 29 Federal Open Market Committee (FOMC) meeting. For the September meeting, expectations are nearly evenly split between a 25-basis-point hike and no change.
Kyle Bass, production business manager at Refi.com, noted that the 10-year Treasury yield is a more critical indicator for homeowners than the Fed funds rate. He observed a pattern of increased refinance applications when rates fell, followed by a sharp decline when they rose, characterizing this as a "window market."
However, Melissa Cohn, regional vice president for William Raveis Mortgage, suggested that renewed military action in Iran could counteract the positive impact of cooling inflation. She stated that bond yields and mortgage rates are currently more sensitive to oil prices, which are rising due to the geopolitical situation, suggesting a "higher-for-longer" rate environment until the conflict with Iran is better resolved.
In other housing news, the 21st Century ROAD to Housing Act was recently enacted with bipartisan support. This legislation aims to enhance housing accessibility and affordability through measures such as limiting institutional investor purchases, streamlining zoning, and introducing a pilot program for small-balance mortgages. Industry leaders like Kimber White of NAMB and Miki Adams of CBC Mortgage Agency expressed optimism about the bill's potential to help first-time homebuyers overcome upfront cost hurdles. Rebeca Romero Rainey of the ICBA highlighted provisions supporting community banks, including extended exam cycles and a pilot program for new bank formation.