Despite some moderation in inflation, the Fed raised rates at their July meeting to bring the Fed funds rate up to the 5.25-5.5% range, the highest level in 22 years. The rate hike was well anticipated and led the 30-year fixed rate mortgage, as measured by the Primary Mortgage Market Survey®, to reach a high of 6.96% during the second week of July before settling in at around 6.8%.
Purchase applications declined in response to these higher rates, with total applications down 25% over the year, purchase applications down 23% and refinance applications declining almost 30% during the third week of July, according to the Mortgage Bankers Association Weekly Applications Survey.
Regarding mortgage performance, overall delinquency rates as well as foreclosure starts continue to remain low according to the Q2 2023 Mortgage Bankers Association’s (MBA’s) Delinquency Survey.
The macroeconomic outlook is still uncertain as the Federal Reserve may continue with rate hikes through the rest of this year. Currently, there is a 60% probability that there will be no more rate hikes according to the futures markets, with a quarter of the analysts expecting the Fed to raise rates by another quarter point in the September meeting, and only 2% expecting the year to end in the 5.75-6% target range for the Fed funds rate. The economic risks are weighted to the downside until the Fed completes its tightening cycle.