Six consecutive declines in US mortgage rates signal a strong rate cut? Tonight's CPI data may set the tone!
U.S. mortgage rates have fallen for six consecutive weeks, dropping to a low of 6.29% since February 2023. This has had a positive impact on homebuyers and has increased the number of refinancing applications. The 30-year fixed mortgage application index rose by 1.8%, while refinancing applications grew by 0.9%. The market expects that the CPI data to be released tonight will show a 2.5% year-on-year increase in August, lower than the 2.9% in July. Expectations for a Fed rate cut have strengthened, with traders estimating a 20% chance of a 50 basis point cut
According to the latest information from Zhitong Finance and Economics APP, mortgage rates in the United States fell to the lowest point since February 2023 last week. This positive change has brought encouragement to homebuyers and significantly increased the number of refinancing applications, which is undoubtedly good news for the real estate market. According to data released by the Mortgage Bankers Association (MBA) on Wednesday, for the week ending September 6, the 30-year fixed-rate mortgage contract rate dropped by 14 basis points to 6.29%, marking the sixth consecutive week of decline. This rate decrease led to a 1.8% increase in the home purchase application index, reaching the highest point in nearly two months. At the same time, refinancing mortgage applications also grew by 0.9%, reaching the second-highest level since May 2022.
The continuous decline in mortgage rates over the past few weeks is helping more potential buyers to end their wait-and-see attitude and enter a market that remains active despite tight inventory and rising prices in the secondary housing market. The average contract rate for a 15-year mortgage also decreased by 27 basis points to 5.71%, the lowest level since February 2023. Adjustable-rate mortgages also saw a decline.
MBA's survey has been conducted weekly since 1990, covering over 75% of retail residential mortgage applications in the United States. The survey results are based on feedback from mortgage bankers, commercial banks, and savings institutions.
It is worth mentioning that mortgage rates are closely related to the U.S. government bond market. Driven by expectations of a Fed rate cut, the yield on the 10-year U.S. Treasury bond has dropped to the lowest point in a year. The yield on the 2-year U.S. bond also briefly fell by 5 basis points to 3.55%, the lowest level since September 2022. The market generally expects that the inflation report to be released later tonight will show a 2.5% year-on-year increase in the U.S. CPI in August, lower than the 2.9% in July.
Although the market generally expects the Fed to begin cutting rates at the meeting on September 18, the key question is whether it will cut rates by 50 basis points to support the economy. Traders currently estimate the likelihood of this scenario to be around 20%.
Evelyne Gomez-Liechti, a strategist at Mizuho International, said, "The market clearly wants to see a rise," but she also pointed out, "Unless today's CPI data unexpectedly drops, I expect the market to consolidate around current levels before the Fed meeting."
Stefanie Holtze-Jen, Chief Investment Officer for Asia Pacific at Deutsche Bank Singapore, also expects the Fed to start a rate cut cycle next week and predicts a total of 6 rate cuts within a year until September 2025. This forecast is fewer than the approximately 9 times expected by traders, and Deutsche Bank warns that mispricing could lead to a round of market volatility