Mortgage rates moved higher after the Fed rate cut

The Federal Reserve cut its benchmark interest rate last week, and just as happened the last two times, mortgage rates rose. That caused demand for home loans and refinances to drop.

Total mortgage application volume fell 3.8% last week compared with the previous week, according to the Mortgage Bankers Association‘s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, 806,500 or less, increased to 6.38% from 6.33%, with points increasing to 0.62 from 0.60, including the origination fee, for loans with a 20% down payment.

“Mortgage rates inched up last week following the FOMC meeting, as investors interpreted the comments to signal that we are near the end of this rate cutting cycle. As a result, mortgage applications declined slightly,” said Mike Fratantoni, MBA’s SVP and chief economist in a release.

Applications to refinance a home loan fell 4% for the week and were 86% higher than the same week one year ago. Last year at this time, the rate on the 30-year fixed was 37 basis points higher. While that is not a huge difference, borrowers who may have taken out a loan two years ago, when rates were well over 7%, could now benefit from a refinance.

Applications for a mortgage to purchase a home fell 3% for the week and were 13% higher year-over-year.

“Purchase application volume typically drops off quickly at the end of the year, and this shifts the mix of the business, with the refinance share reaching 59 percent last week, the highest level since September,” added Fratantoni, noting that refinance activity has remained mostly the same for the past month as rates continue to hold at around the same narrow range.

Mortgage rates moved slightly lower to start this week, according to a separate survey from Mortgage News Daily. This followed new government data on the employment picture. Markets are still waiting for government data on inflation expected Thursday.

“This is the heaviest hitting monthly inflation report and inflation is the other half of the Fed’s rate-setting equation,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.