High points for US data scheduled for August 5 week

The economic data calendar in the August 5 week is sparse and has little market moving potential. There will be plenty of time to think about the outcome of the July 30-31 FOMC meeting and Chair Jerome Powell’s remarks, and about the implications for monetary policy from July employment report released on August 2. Expectations for a rate cut at the September 17-18 FOMC meeting are well-founded between a rebalanced and normal job market in an economy that is expanding modestly, and inflation data pointing to disinflation not only for commodities but for services and wages as well.

The most interesting data will be the weekly MBA mortgage applications survey on Wednesday at 7:00 ET, and the weekly Freddie Mac data on 15- and 30-year mortgage rates at 12:00 PM on Thursday. The housing market has felt the pinch of elevated mortgage rates and/or lean housing stock that have driven prices higher despite fewer buyers.

Now that more existing homes are coming on to the market and new homebuilders are offering more entry-level units, the supply of homes available for sale is less of an issue. The question for many potential homebuyers is that of affordability. Finding the right home at the right price and obtaining a mortgage that isn’t burdensome remains a problem.

The escalation in home prices is easing and some household incomes have improved while inflation is ebbing – but not absent. This makes potential homebuyers unusually sensitive to even small changes in interest rates. A 30-year fixed rate of 7 percent seems to be the tipping point. Above that and buyers withdraw from the housing market, below that can make home shopping more attractive.

The weekly Freddie Mac rate for a 30-year fixed rate mortgage has been below 7 percent since the start of June and has fallen as low as 6.73 percent in the August 1 week, its lowest since 6.64 percent in the February 8 week. The MBA data has not seen an increase in purchase applications since the July 5 week. It could simply be the summer doldrums and weaker demand at a time when fewer households are looking to relocate. However, it could also be that buyers who are not under pressure to find housing are anticipating further declines in interest rates and are willing to wait.

Another source of mortgage application is from refinancing. This has been quite low since many current mortgage holders have notes taken out when rates were considerably lower. Refinancing had a miniboom in the MBA data for the weeks of July 12 and July 19. It has since petered out, but there is a hint here of a potential wave of refinancing activity in the near future. Homebuyers from October-November 2023 who took out mortgages when the 30-year fixed rate was at its recent peak could shave as much as 100 basis points off the lending rate if they refinance now. There are also those buyers who opted for an adjustable-rate mortgage who would prefer to lock in a fixed rate that is much the same as the one on their current ARM note.

Homebuyers are probably convinced that mortgage rates below 6 percent are not on the immediate horizon, but rates in the mid-6 percent-range could help move some of the housing inventory as a slightly brisker pace for August and September.