Mortgage Update from Stephen Morrison of Berkshire Bank

Weekly Update | June 12, 2023

Interest Rates Up Slightly

An unusually quiet week for economic news and housing data saw mortgage interest rates rise slightly. More significant rate movement was expected this week following the release of May’s Consumer Price Index (CPI) report and the latest Federal Reserve announcement.

Economic data is one of the most important influences on the bond market, which determines day-to-day rate movement. Weak economic numbers typically push rates downward, and this was the case following Thursday’s Weekly Jobless Claims report. Initial filings for unemployment benefits totaled a seasonally adjusted 261,000 for the week ending June 3—well ahead of the Dow Jones estimate of 235,000 and the highest amount since late October 2021.

Earlier in the week, rates moved upward following the Bank of Canada’s rate hike announcement. The bank raised its overnight rate to a 22-year high of 4.75%. The move was in response to surprisingly strong consumer spending, a pick-up in housing activity, and a tight labor market.

This week’s CPI report will be one of the highly anticipated of the month. April’s reading of 4.9% marked the 10th consecutive month that the index slowed. While economic forecasters are predicting that inflation will continue to fall, it is not clear when it will drop to the Federal Reserve’s target of 2%. [Note: today's report showed May's annualized inflation at 4%, a sharp drop from April's 4.9%, and slightly lower than expected-jw]

The U.S. central bank will hold its next meeting June 13 and 14. At its May gathering, the Fed raised its benchmark rate for the 10th time in 14 months. But the biggest headline to come out of the last meeting was not the rate increase but the central bank removing previous language—specifically, the phrase “some additional policy firming may be appropriate”—that signaled future rate hikes.

Many economists believe that with inflation and the labor market showing signs of cooling, officials will halt the rate increases. Otherwise, they will raise the benchmark rate again, despite the growing risk that the move will trigger a mild recession.

Monday’s ISM Services Index revealed that economic activity in the services sector expanded in May for the fifth consecutive month. The index reading of 50.3 was down slightly from April’s 51.9. The sector has grown in 35 of the last 36 months with the lone contraction coming in December of last year.

Wednesday’s Weekly Mortgage Applications Survey from the Mortgage Bankers Association revealed that applications fell 1.4% from one week earlier. The Refinance Index was down 1% on a weekly basis and 42% lower than one year ago. Meanwhile, the seasonally adjusted Purchase Index decreased 2% for the week.