Rates Hold Steady Below 7%

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Fannie Mae released its March Home Purchase Sentiment Index This Week in Real Estate which dipped slightly against the prior month, marking its first decline since November 2023, yet it remains over 10 points higher than a year ago. Inflation, as measured by the Consumer Price Index (CPI), rose more rapidly than expected in March for the third consecutive month, exceeding the Fed’s 2% target. Additionally, the average 30-year mortgage rate climbed to 6.88% from 6.82% last week, reaching its highest level in five weeks, as stronger-than-expected employment and inflation reports fueled speculation among bond investors about the Federal Reserve’s future benchmark interest rate adjustments. Although the average rate peaked at a 23-year high of 7.79% in October, it has remained below 7% since early December, albeit staying above the 6.6% average recorded in mid-January. Below are a few newsworthy events from the second week of April that influence our business:  

US CONSUMER PRICES HEAT UP IN MARCH; SEEN DELAYING FED RATE CUT. U.S. consumer prices increased more than expected in March leading financial markets to anticipate that the Federal Reserve would delay cutting interest rates until September. The third straight month of strong consumer price readings reported by the Labor Department on Wednesday also suggested that the pick-up in inflation in January and February could not be solely attributed to businesses raising prices at the start of the year as economists had argued. The report followed news last week that job growth accelerated in March, with the unemployment rate slipping to 3.8% from 3.9% in February. Though the annual increase in consumer prices has declined from a peak of 9.1% in June 2022, the disinflationary trend has virtually stalled in recent months. Shortly after the data, financial markets pushed back their expectations for the first rate cut to September from June, according to CME’s FedWatch Tool. They now expect only two rate cuts instead of the three envisaged by Fed officials last month. Minutes of the Fed’s March 19-20 meeting published on Wednesday showed policymakers worried that progress on inflation might have stalled. The central bank has kept its policy rate in the 5.25%-5.50% range since July. Read the full story here.

MORTGAGE RATES MOVE TOWARD SEVEN PERCENT AS MARKETS DIGEST INCOMING DATA. Freddie Mac released the results of its Primary Mortgage Market Survey (PMMS®) on Thursday, showing the 30-year fixed-rate mortgage (FRM) averaged 6.88 percent. “Mortgage rates have been drifting higher for most of the year due to sustained inflation and the reevaluation of the Federal Reserve’s monetary policy path,” said Sam Khater, Freddie Mac’s Chief Economist. “While newly released inflation data from March continues to show a trend of very little movement, the financial market’s reaction paints a far different economic picture. Since inflation decelerated from 9% to 3% between June 2022 and June 2023, the annual growth rate of inflation has remained effectively flat, ranging from 3.1% to 3.7% and averaging 3.3%. The March estimate of 3.5% annual growth is in the middle of that range. Khater continued, “It’s clear that while the trend in inflation data has been close to flat for nearly a year, the narrative is much less clear and resembles the unrealized expectations of a recession from a year ago.” Read the full story here.

BUILDING MATERIAL PRICES CONTINUE TO RISE IN MARCH. Inputs to residential construction, goods less food and energy, increased for the fifth straight month, according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. The index for inputs to residential construction represents building materials used in residential construction. The non-seasonally adjusted index increased 0.21% in March following a 0.54% increase in February and a 1.25% in January. While the index increases are slowing, the index continues to grow at a faster rate than 2023 as the average monthly change in 2023 was 0.15%. The seasonally adjusted PPI for softwood lumber rose for the first time since July of 2023, up 1.90% in March from February. Softwood lumber prices were 6.76% lower in March 2024 when compared to 2023. This yearly decline was the 17th straight, as lumber prices in 2023 were much more stable than the prices between 2020 and 2022. Read the full story here.

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