Evelyn Reynolds

Some traders and economists think inflation reflected in the consumer price index might have peaked in October.
That expectation is based on a recent steep decline in the Baltic Dry Index, a popular measure of global shipping rates used by economists as a leading indicator for inflation.
“Inflation is still high, and the speed at which supply and demand catch up will vary,” said one economist. “But it looks like, in aggregate, that the worst of the runup in import inflation might be over.”

Shipping containers in the Port of Los Angeles in Los Angeles, California, U.S., on Wednesday, Oct. 13, 2021.
Kyle Grillot | Bloomberg | Getty Images

The rate of consumer price increases jumped to a three-decade high in October as supply chain disruptions and holiday-shopping demand fueled inflation across a range of industries.
But as hot as October’s report was, some fixed income traders and economists say that inflation in November and December could be cooler, and that last month’s surge could be a peak.

That expectation is based on a recent slide in the Baltic Dry Index, or BDI, a popular measure of global shipping rates used by economists as a leading indicator for inflation.
“The decline in the Baltic Dry Index may be signaling that some of the overheating in the economy that has been taking place is reversing itself,” Gus Faucher, chief economist at PNC Financial Services, told CNBC in an email. The drop “is an indication that perhaps the worst of this is over, at least for goods that are traded internationally.”

Arrows pointing outwards

Faucher’s comments came as the Labor Department reported that its consumer price index, or CPI, jumped 6.2% in October from a year ago, the largest acceleration since December 1990 and the fifth straight reading above 5%.
Hot inflation reports like that have led some of the nation’s top economists, including Federal Reserve Chairman Jerome Powell, to believe inflation may stick around a bit longer before subsiding.
Markets reacted to the October print as expected, positioning for more price increases.

Gold, a popular hedge against rising prices, rose to its highest levels since June with futures north of $1,860 per ounce. The interest rate on the short-duration 2-year Treasury note, a rough gauge of traders’ forecasts for future Fed rate hikes, climbed 6 basis points to 0.5%.

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Equities, reflecting investors’ fears of higher borrowing costs, dipped. The S&P 500 lost 0.25% while the Nasdaq Composite shed 0.6%.
But that reaction could be overdone if shipping freight costs prove to be reliable as a leading indicator for other inflation gauges.
The Baltic Dry Index, which tracks freight rates for ships carrying raw materials and is reported daily, began to accelerate in January, when it went to 2,000 from 1,350 in December.
Less than two months later, the CPI climbed to 2.6%, above the Fed’s long-term inflation target of 2%, and hit its highest level since 2018.
The BDI continued to rise – and to foreshadow increases in consumer prices. That is until Oct. 7, when it reached a lofty 5,650, its highest level in more than a decade.
Since then, the BDI has declined by 50% and recently hit its lowest level since June, tracking a decline in global shipping rates. That’s led some, like Faucher, to suggest the final two months of 2021 could see inflation ease.
“Inflation is still high, and the speed at which supply and demand catch up will vary across different parts of the economy,” he said. “But it looks like, in aggregate, that the worst of the runup in import inflation might be over.”

Looking back vs. looking ahead

Those who suggest a major component of inflation could be peaking note that the BDI updates are both daily and tend to lead other inflation gauges, while CPI reports are more retrospective.
Each month, statisticians from the Labor Department visit or call retailers and ask them about how much they’re charging for a predetermined basket of goods and services: How much is a barber charging for a haircut? How much is the local convenience store charging for a gallon of regular gasoline or a dozen eggs? How much is Apple charging for its new iPhone?
The Bureau of Labor Statistics then compiles the survey results gathered from across the whole month and presents the findings to the globe about a week after the start of the next month. Meaning that the inflation reading is, by design, backward looking.
“I think that all legitimate leading indicators should be watched,” Thierry Wizman, global interest rates and currencies strategist at Macquarie Group, wrote Wednesday. “Shipping rates will measure the tightness of seaborne freight markets, which are an important bottleneck in the supply chain.”

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The Biden administration’s Supply Chain Disruptions Task Force agrees. The group said in a recent blog post that it’s monitoring shipping backlogs at ports across the country as a key reason supply has been unable to keep pace with consumer spending.
Inflation represents a threat to the Biden administration’s policy agenda and any Democrats up for election in 2022. In a recent NBC News poll, 57% of American said they disapprove of Biden’s handling of the economy, while just 40% said they approve. Other surveys show that inflation and economic concerns are outstripping worries over Covid.
The White House stepped up its supply chain action on Tuesday, when it announced it will soon begin work with the U.S. Army Corps of Engineers on $4 billion worth of construction at coastal ports and inland waterways.
The administration also wants to deploy $3.4 billion in upgrades to obsolete inspection facilities that will make international trade more efficient through the northern and southern borders, a senior administration official said.
President Joe Biden on Wednesday was set to visit the Port of Baltimore to discuss how the bipartisan $1 trillion infrastructure bill could help ease the supply chain problems.

Other factors in inflation

There is still much debate about how to read the October inflation report and how prices will move in the months ahead.
Sung Won Sohn, an economist at Loyola Marymount University and SS Economics, wrote Wednesday that labor shortages still vex global supply chains and don’t show signs of easing.
“Inflation is spreading like wildfire,” he wrote in an email. “Wages and salaries are marching upward as businesses scramble for workers offering higher pay, bonuses and other benefits. Businesses find little resistance to higher prices as inflation expectations mount.”
Higher wages and more-generous benefits packages, some warn, could lead some of those businesses looking to hire to raise prices again in the future to offset a hit to their bottom line.
That hasn’t been the case thus far since inflation is currently outpacing wage gains.
Earnings may be up 4.9% on a year-over-year basis, but the CPI is up more than 6%. That means, on average, real wages have actually declined over the past 12 months. Many Americans simply cannot buy as many gallons of gas, cartons of eggs or barrels of home heating oil as they could one year ago.
There’s also the issue of changing consumer behaviors.
As Americans finish their holiday shopping, their demand for international goods may wane and ease traffic at West Coast ports. Instead, they could decide to spend their income on the service side of the economy and opt to travel, visit spas and resorts, and attend live music and sporting events.
In that case, it’s not entirely clear what could happen to inflation.
The Fed, in charge of keeping inflation steady, says it expects inflation to get worse before it gets better.
Powell said during a news conference last week that central bank economists expect high inflation to linger “well into next year.” He added, however, that he hopes price increases will abate by the second or third quarter of 2022.
He also signaled he isn’t as concerned about a tight labor market.
“The inflation that we’re seeing is really not due to a tight labor market. It’s due to bottlenecks and it’s due to shortages and it’s due to very strong demand meeting those,” Powell said a week ago. “It is very difficult to predict the persistence of the supply chain constraints or their effects on inflation. Global supply chains are complex. They will return to normal function but the timing of that is highly uncertain.”

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The consumer price index jumped by 6.2% in October, above the 5.9% expected by economists.
CPI was boosted by a broader group of price increases, suggesting to some economists that there is a risk inflation becomes more persistent.
The market is now anticipating the Federal Reserve could raise rates to fight inflation as early as July.

A gas pump at an Arco gas station in San Diego, California.
Mike Blake | Reuters

October’s surge in consumer prices was driven by some factors that may linger. Market pros say the Federal Reserve may be forced to move up the timeline on its ultimate inflation-fighting tool: interest rate hikes.
The consumer price index jumped 0.9% on a monthly basis, and was up 6.2% year-over-year, the fastest pace in 30 years. According to Dow Jones, economists had expected a 5.9% gain. Excluding food and energy, the increase was still high, up 0.6% or 4.6% year-over-year.

CPI measures inflation based on a basket of products from rents and groceries to gasoline and medical services. After the October report Wednesday, Treasury yields rose and markets began to price in more aggressive Fed tightening, or interest rate hikes.
The fed funds futures market showed that traders have placed higher odds on the central bank to start raising rates by July, rather than September. Traders expect another hike by next December and at least three more in 2023.
“The real risk is they’re going to move faster than September… and the market is pricing in a faster move. And until today, we actually thought the market was ahead of itself,” said Michael Englund, chief economist at Action Economics.
“If you get a few more numbers like this, not only is inflation not slowing, it’s accelerating,” he added. “If it continues to gain steam, there may be more of a panic in the first quarter, given what happens in December, January and February. We already know we’re going to have big price gains in November, given what we’ve seen in gas prices.”
But Englund said the Fed is likely to be more dovish next year. Fed Chairman Jerome Powell’s term expires early next year. Even if he is not renominated, his possible replacement, Fed Governor Lael Brainard, is viewed as a dove.

“We continue to think they’ll try to hold the line as long as they can,” said Englund.
Economists said the inflation has become broader, and therefore risks are becoming more persistent.
Diane Swonk, chief economist at Grant Thornton, said she does not expect inflation to peak until early next year.
“I still think we’ll be cresting out in the first quarter. It’s going to get worse before it gets better. The comps don’t play out until the spring,” she said. “It’s not a pretty picture right now.”
Some factors, like semiconductor shortages, could fade. But that one in particular is clearly showing up in car prices, as the lack of chips has made it impossible for car makers to keep up with demand.
Used vehicle prices again were a big contributor to CPI, up 2.5% over September, and 26.4% year over year. New vehicle prices rose 1.4% on a monthly basis and 9.8% over the last 12 months.
Swonk says higher inflation could push the Fed to speed up the tapering of its $120 billion a month bond-buying program. That would clear the central bank to move faster to raise rates next year.
Boiling oil
Gasoline is one of those areas that could be hotter-than-expected and for longer periods. Consumers are feeling the pinch of higher fuel costs all across the country. Nationally, a gallon of regular unleaded was $3.41 Wednesday, $1.30 more than a year earlier, according to AAA.
Francisco Blanch, head of global commodities and derivatives strategy at Bank of America, said oil could reach $120 a barrel by next year. On Wednesday, a barrel of West Texas Intermediate crude settled at $81.34.

Fuel oil prices rose 12.3% in October and are up 59.1% over the past year, according to the CPI report. Energy prices overall rose 4.8% in October and are up 30% for the 12-month period.
“I think we are in a bit of a world of contradictions, and oil is in the bullseye of many of the contradictions,” said Blanch. “Oil has been the biggest laggard in the energy space. Every single commodity has been skyrocketing for the last 18 months, and oil is back to $80.”
Blanch said demand could continue to push the price higher, and users of natural gas have been substituting oil as prices of that commodity rise.
“The thing with oil is we are about to experience a big resurgence in international travel,” he said. International flights are just beginning to rebound, and demand for oil is about to increase as airlines buy more jet fuel.
“It could be 1.5 million to 2 million barrels [more demand] by the middle of next year,” Blanch said. But then he expects prices to begin to move lower in 2023. “I think at some point we start to slow down demand,” he added.
Swonk said Hurricane Ida, which shut in some U.S. oil and gas production for weeks, affected the price as well. “Clearly Hurricane Ida made it worse. There’s also a lot of other things going on here: Covid, climate change, demand surge,” she said.
Paying the rent
Another area that is likely to get even hotter is shelter costs, about a third of CPI and so far relatively muted.
JPMorgan economist Daniel Silver notes there were large jumps in the main rent measures, and industry data suggest there could be even more increases.
“Tenants’ rent increased 0.42% in October, slightly softer than the September increase but still one of the firmest changes in recent decades,” he wrote. “Owners’ equivalent rent, meanwhile, jumped 0.44% in October, a touch above the September gain and the largest monthly increase since 2006.”
National median rents are up 16.4% since the beginning of the year, according to Apartment List.

Swonk said housing has not returned to its pre-Covid level yet. “Housing could add over a half percent to overall inflation next year and even more to the core. It’s a third of the total CPI, but it’s even bigger on the core,” she said.
Wage spiral
Workers wages have been gaining at a rapid clip this year, but not as much as inflation. Economists said they expect more wage increases to come, which tend to be sticky — that is, a cost that doesn’t easily abate for employers.
It is also an area that can become locked into the rising costs of other essentials, like housing.
Average hourly wages were up 0.4% in October, nowhere near the 0.9% jump in inflation.
“It’s not a wage price spiral like the 1970s or 1960s, but you could go through a period in time where you have a temporary wage price spiral, which gives this more longevity than we would like,” Swonk said.

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The consumer price index surged 6.2% from a year ago in October, the most since December 1990.
Core inflation, stripping out food and energy, increased 4.6%, the fastest gain since August 1991.
Energy, shelter and vehicle costs led the gains, which more than wiped out the wage increases that workers received for the month.

Inflation across a broad swath of products that consumers buy every day was even worse than expected in October, hitting its highest point in more than 30 years, the Labor Department reported Wednesday.
The consumer price index, which is a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% from a year ago, the most since December 1990. That compared with the 5.9% Dow Jones estimate.

On a monthly basis, the CPI increased 0.9% against the 0.6% estimate.
Stripping out volatile food and energy prices, so-called core CPI was up 0.6% against the estimate of 0.4%. Annual core inflation ran at a 4.6% pace, compared with the 4% expectation and the highest since August 1991.
Fuel oil prices soared 12.3% for the month, part of a 59.1% increase over the past year. Energy prices overall rose 4.8% in October and are up 30% for the 12-month period.
Used vehicle prices again were a big contributor, rising 2.5% on the month and 26.4% for the year. New vehicle prices were up 1.4% and 9.8%, respectively.
Food prices also showed a sizeable bounce, up 0.9% and 5.3% respectively. Within the food category, meat, poultry, fish and eggs collectively rose 1.7% for the month and 11.9% year over year.

The price increases meant that workers fell further behind.

In a separate report, the Labor Department said real wages after inflation fell 0.5% from September to October, the product of a 0.4% increase in average hourly earnings that was more than offset by the CPI surge.
Shelter costs, which make up one-third of the CPI computation, increased 0.5% for the month and are now up 3.5% on a year-over-year basis, pointing to more reasons for concern that inflation could be more persistent than policymakers anticipate. The annual pace is the highest since September 2019.
“Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” said Seema Shah, chief strategist at Principal Global Investors.
The data comes as policymakers such as Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen maintain that the current price pressures are temporary and related to Covid pandemic-specific issues. While they have conceded that inflation has been more persistent than they expected, they see conditions returning to normal over the next year or so.
Stock market futures fell following the report and bond yields rose.
Escalating inflation could cause the Fed to tighten policy more quickly than it has signaled. The central bank has indicated that it will within the next few weeks start reducing the amount of bonds it buys each month, though officials have indicated that interest rate hikes are still off in the future.
Traders on Wednesday morning were pricing in two rate increases in 2022 and about a 44% probability of a third hike, according to the CME’s FedWatch tool. The Fed has indicated a narrow likelihood of just one increase ahead, though St. Louis Fed President James Bullard told CNBC overnight that he sees two.
Other market-based measures also have turned more hawkish, with the 5-year breakeven rate, which compares Treasury yields to inflation-indexed bonds, hitting a record high above 3%.
A separate report Wednesday showed that initial claims for jobless benefits edged lower to 267,000, a fresh pandemic-era low after declining 4,000 from the previous week. That was below the Dow Jones estimate for 269,000.
Continuing claims, which run a week behind, increased by 59,000 to 2.16 million, while the total receiving benefits under all programs fell by 107,095 to 2.56 million. The latter number was at 21.7 million a year ago.
Correction: Annual core inflation ran at a 4.6% pace, compared with the 4% expectation and the highest since August 1991. An earlier version misstated the month and year.

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Traders in the fed funds futures market now see the first Federal Reserve interest rate hike to be much more likely in July, following a very hot October consumer inflation report.
The first full rate hike is priced into the September contract but the July contract is now nearly priced in.
A second rate hike is expected by December.

Traders on the floor of the NYSE
Source: NYSE

Traders in the futures markets moved up their expectations for the first Federal Reserve interest rate hike to July from September, following a hotter than expected inflation report.
“It’s a very sharp move we’re seeing the back end of 2022,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

October’s consumer price index came in at a scorching 6.2% year-over-year, higher than the 5.9% expected.
Traders are now fully pricing in a first rate hike for September, but they are pricing in much higher odds that the Fed starts to raise rates sooner. The Fed has said it would complete tapering its bond buying program by the middle of the year, and then begin raising interest rates.
“The effective fed funds rate is currently at 8 basis points and the fed funds July contract is priced at 27 basis points,” said Boockvar. Each rate hike is assumed to be a quarter of a percentage point.
“That implies the odds are about 80% that they raise rates by July,” he said. The Fed is currently targeting its fed funds rate in a range of zero to 0.25%.
“Fed funds are pricing in more hikes sooner. I think it’s too much,” noted Michael Schumacher, Wells Fargo director rates. Schumacher added that the market is now pricing more aggressive hikes for 2023, with more than three expected in that year.

Fed funds futures also show they now expect a second full hike by December, with the contract trading at 0.57%, noted Ben Jeffery, fixed income strategist at BMO.
Strategists are watching the move in the Treasury curve which is showing a narrowing between long end yields, like the 30-year and the shorter end, like the 5-year
“The flattening of the curve reflects more hawkish fed assumptions, also reflected in the fed funds futures market,” said Jeffery. He said the spread between the 5-year and 30-year is narrower, at 68 basis points, or 0.68 percentage points. That is the flattest since the early weeks of the pandemic in March, 2020.
A flattening yield curve can indicate that investors are worried about a weakening economy.

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Companies around the world are battling supply chain bottlenecks as a post-pandemic spike in demand converges with industrial production struggling to catch up after lengthy Covid-induced shutdowns.
Policymakers across major central banks have largely held the line that the period of high inflation in their respective economies, and the global supply problems feeding into it, are “transitory.”

A truck picks up a shipping container at the Port of Savannah in Georgia. The supply chain crisis has created a backlog of nearly 80,000 shipping containers at this port, the third-largest container port in the United States, with around 20 ships anchored off the Atlantic coast, waiting to offload their cargo.
Paul Hennessy | LightRocket | Getty Images

LONDON — Top executives at multiple European blue-chip companies have told CNBC that supply chain problems, labor shortages and inflationary pressures will run for longer than policymakers are expecting.
The most recent inflation prints have done little to assuage concerns about stickier inflation. The U.S. consumer price index jumped 6.2% in October from a year ago, official figures revealed on Wednesday, the sharpest annual rise for 30 years and vastly outstripping the U.S. Federal Reserve’s target.

Chinese producer price index inflation surged 13.5% annually in October, while U.S. PPI grew at 8.6% annually, equaling an all-time record.
Companies around the world are battling supply chain bottlenecks as a post-pandemic spike in demand converges with industrial production struggling to catch up after lengthy Covid-induced shutdowns.
Ahold Delhaize Chief Financial Officer Natalie Knight told CNBC Wednesday that although she was confident of the Belgian-Dutch grocer’s strategy to deal with such pressures, they showed no sign of abating.
“I think what we are definitely seeing is inflation is picking up, but what I would also say is when you look at food, it is a smaller share of wallet than some other categories, and we definitely see other areas where inflation looks a lot higher than in our industry,” Knight said.

Knight suggested rising consumer prices will continue through the fourth quarter. She said Ahold Delhaize was working to ensure price increases were not passed on to customers.

“We’re working with the vendors, we’re working with economists making sure we’ve got the right ‘should cost’ models, so that we’re able to really only accept the prices that are absolutely necessary,” she added.
On labor, Knight said the company had noticed a divergence between a robust supply in Europe, which had normalized to around pre-Covid levels, and the U.S., where there are “bumps in the road” with regards to recruitment. She also said there were certain “pressure points” across the labor market, particularly in transportation and distribution.
“I think our vacancy rates are pretty consistent, but we are working a lot harder to keep them that way,” Knight added.
Policymakers across major central banks have largely held the line that the period of high inflation in their respective economies, and the global supply problems feeding into it, are “transitory.” However, many companies have warned of increased cost pressures in their third-quarter earnings reports in recent weeks.
Managing supply problems a ‘core competence’
Supply chain woes have been exacerbated in different parts of the world by various geopolitical factors. For instance, power shortages in China have affected production in recent months, while in the U.K., Brexit has been a big contributor to a shortage of truck drivers and agricultural workers.
However, concerns over the persistence of these problems were echoed by Siemens Energy CEO Christian Bruch, who told CNBC Wednesday that the industrial world is going to be dealing with this “for quite some time.”

“It is going to be way into 2022 and honestly, my belief is managing the supply chain will be something which will be with us for [a long time],” he said.
“It will be a really core competence of companies like us, making sure that you can manage these scarcities and issues on the supply chain, not only on the material but also on the logistics side.”
Bruch said the energy industry in particular would need to improve its management of shortages, given the increased demand for raw materials needed for the promised transition toward renewables.
‘Once in two-decade inflationary pressure’
In the U.K., inflation slowed unexpectedly to an annual 3.1% in September, but analysts expect this to be a brief respite after August’s 3.2% climb was the steepest since records began in 1997.
The Bank of England expects consumer price inflation to top out at 5% before moderating toward the end of 2022 and into 2023, but Standard Chartered CEO Bill Winters recently told CNBC that his bank’s recent experience points to higher inflation becoming structural.
“I see wage pressure pretty much everywhere we go, we see labor shortages, and of course there’s friction costs, that should iron themselves out over time, there’s energy prices, which I think are going to remain high for quite some time because economic activity is strong,” Winters said.
“That to me says that inflation expectations are becoming ingrained.”

Following Unilever’s results in late October, CEO Alan Jope said the British consumer goods giant was witnessing “once in two-decade inflationary pressure.”
“We are seeing commodity inflation across really every type of input cost that we have — agricultural commodities, petrochemical commodities, paper and board, transport, logistics, energy, labor — all are moving in an upward direction,” he said.
“Our first reflex is to fire up our productivity programs and try to save as much money as we can and avoid taking price, however this is once in two-decade inflationary pressure and so we have raised prices.”

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White House officials have embraced a key talking point as a bout of high inflation hits consumers and hands Republicans ammunition to argue against President Biden’s policies: Price gains may be faster than usual, but at least they are slowing down from rapid summertime readings.Data to be released on Wednesday is likely to eliminate that shred of comfort.Consumer price inflation probably picked up to 0.6 percent last month from September, a Labor Department report is expected to show, faster than the prior month’s increase of 0.4 percent and the fastest pace since June. Even so-called core price gains, which strip out products like food and fuel, are expected to accelerate.Those big October gains will mean that prices overall have climbed by 5.9 percent over the past 12 months, with the core index up 4.3 percent, based on the median estimate in a Bloomberg survey of economists.Those inflation rates would be far faster than the 2 percent annual gains the Federal Reserve, which has primary responsibility for maintaining price stability, aims for on average over time. While the Fed sets its goal using a separate measure of inflation — the Personal Consumption Expenditures index — that too has picked up sharply this year. The C.P.I. reports come out faster, and help to feed into the Fed’s favored gauge, so they are closely watched by economists and Wall Street investors.Administration officials and Fed policymakers alike have spent months emphasizing that inflation, while high, is likely to fade. But they have had to revise how quickly that might happen: Supply chains remain badly snarled, and demand for goods is holding up and helping to fuel higher prices. As wages begin to rise in many sectors amid labor shortages, there are reasons to expect that some employers might charge their customers more to cover climbing worker costs.“It is now clear that this process will take longer than initially expected, and the inflation overshoot will likely get worse before it gets better,” Goldman Sachs economists wrote in a research analysis this week.Inflation Is High. Will It Go Higher? Price gains have rocketed up in 2021, and though gains had begun to moderate somewhat, October data could mark a turnaround in the trend.

Source: Bureau of Labor StatisticsBy The New York TimesThe factors that probably pushed up inflation in October were varied: Used and new car shortages have sent prices skyrocketing, supply chain issues have made furniture costlier, labor shortages are raising service-industry price tags, and rents are rising after a weak 2020. In the headline data, food and fuel prices have picked up sharply.It is difficult to predict when those trends might moderate. Many of them are intertwined with the reopening of businesses from state and local lockdowns meant to contain the coronavirus, and the economy has never gone through such a widespread shutdown and restart before.But policymakers have become increasingly wary that price gains that are too quick for comfort might linger. While they were willing to overlook a burst of temporary inflation, long-lasting gains would be more of a problem, potentially spurring the Fed to raise interest rates to cool off demand and contain price pressures.There are some worrying signs. Consumers have been increasing their expectations for future price gains. Households expecting to face climbing grocery, department store and gas bills might demand pay raises — setting off an upward cycle in which wages and prices push one another ever higher.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 3.16% from 3.24%.
Refinance demand rose 7% last week from the previous week.
Mortgage applications to purchase a home increased 3% for the week but were 4% lower than the same week one year ago.

A property for sale in Monterey Park, California
Frederic J. Brown | AFP | Getty Images

Mortgage rates fell for the second straight week last week, and that helped boost refinance demand for the first time in a while. As a result, total mortgage application volume rose 5.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.16% from 3.24%, with points remaining unchanged at 0.34 (including the origination fee) for loans with a 20% down payment. The rate is now down 14 basis points in the past two weeks, but still 18 basis points higher than the same week one year ago.

Refinance demand, which is highly sensitive to weekly rate moves, rose 7% last week from the previous week. It was, however, 28% lower year over year. The refinance share of mortgage activity increased to 63.5% of total applications from 61.9% the previous week.
“Although overall activity remains close to January 2020 lows, homeowners acted on the decrease in rates,” said Joel Kan, an MBA economist. “Additionally, the average loan balance for a refinance application was the highest in a month.”
Mortgage applications to purchase a home increased 3% for the week but were 4% lower than the same week one year ago. The housing market is well into its slower season, and while demand is stronger than usual, homebuyers are still facing a lean and pricey market. The brief drop in rates may have brought some buyers back, but given how high the costs are today, it didn’t give them much more purchasing power.
Mortgage rates did drop slightly lower to start this week. They are now at the best levels since late September.

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