Mortgage Activity Fades As Rates Rebound

The latest round of MBA mortgage statistics (through the week to Feb 16) showed a continued pullback in mortgage activity since the start of February as rates have ticked higher, ending a short-lived rebound.

• MBA mortgage applications fell 10.6% W/W last week (vs -3.3% prior revised), with the Refinance index down 11% (up 0.1% Y/Y) and the seasonally-adjusted Purchase Index down 10%, with the unadjusted Index down 6% (down 13% Y/Y).
• Refinancing activity has now pulled back for 2 consecutive weeks (back to early January levels), with purchases down for 4 consecutive weeks (and back to mid-November levels). After briefly hitting the highest levels since April 2023 in January, the Purchase Index (133.60) is now not far from its October low (125.20) which was the lowest since the mid-1990s.
• The explanation for the pullback is straightforward: 30-Year conforming mortgage rates ticked up to the highest since early December last week (7.06% vs 6.87% prior). After peaking at 7.90% in October, the rate hit a low of 6.71% in mid-December, spurring a rebound in refinancing/purchase activity which is now fading as Fed rate cuts are now seen as a more distant prospect - see chart below.
• As such, this is an area of the economy where the Fed appears to have relatively more control on activity, though the end-product in terms of inflation remains in question with a residential construction of new homes remaining robust as fixed long-term mortgages have brought the existing homes sales market to a halt.
• Minneapolis Fed Pres Kashkari - at the hawkish end of the FOMC spectrum - noted housing activity as one piece of data that "lead me to question how much downward pressure monetary policy is currently placing on demand".