1 of 2 | Higher lending rates are a deterrent to both those looking for a better rate on their mortgage and for would-be homebuyers, the Mortgage Bankers Association found. File photo by Alexis C. Glenn/UPI | License Photo
May 31 (UPI) -- With lending rates still stubbornly high, the Mortgage Bankers Association reported that applications for a home loan declined from week-ago levels.
Through the week ending May 26, the MBA found that mortgage applications declined by 3.7% from the prior week. Much of the decline was attributed to lingering inflationary pressures.
"Inflation is still running too high, and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon," said Mike Fratantoni, a senior vice president and chief economist at the MBA.
The Commerce Department reported that personal consumption expenditures (PCE), one of the metrics preferred by the Federal Reserve to gauge inflation, increased by 0.4% in April, after a lackluster increase of 0.1% month-on-month to March. Over the 12-month period ending in April, the PCE price index increased by 0.2% from the prior month to reach 4.4%.
Resilient inflation has prompted the Fed to hike the target interest rate over the past year. Another hike of 25 basis points is possible next month, adding to the pressure for would-be homebuyers.
The MBA said lending rates for a 30-year loan are above 7% in some cases, and the weekly average of 6.9% is the highest rate since November.
Fratantoni said that's been keeping buyers -- and existing homeowners looking for better rates -- on the sidelines. Refinancing as a share of total mortgage activity dropped from 27.4% to 26.7% to the week ending May 26.
"While refinance demand is almost entirely driven by the level of rates, purchase volume continues to be constrained by the lack of homes on the market," he added.
Separately, the S&P CoreLogic Case-Schiller indices showed home prices on average increased month-on-month by 0.4% to March, while its 20-city composite index increased by 0.5% from February levels.
The U.S. consumer, meanwhile, is growing pessimistic given that inflation continues to run above the 2% target rate set by the Federal Reserve.