Fewer homeowners are refinancing their mortgages, and purchase activity is essentially flat after mortgage rates rose sharply last week.
Applications to refinance a mortgage fell 9% through Friday compared to a week earlier, according to the Mortgage Bankers Association (MBA). The drop in applications came as mortgage rates moved broadly higher last week as traders rethought their expectations for future benchmark interest rate cuts from the Federal Reserve.
Strong September hiring data strengthened the case for the central bank to make fewer and smaller rate cuts than some market participants had hoped for. Traders now see an 87% chance that the Fed cuts interest rates by 25 basis points at its November meeting, according to CME FedWatch data , and a 13% chance that it leaves rates unchanged. Before, they saw some likelihood of a larger 50 basis point drop.
The changing expectations sent Treasury yields and mortgage rates sharply higher. The average 30-year mortgage rate was around 6.62% on Monday, up nearly half a percentage point in a single week, according to Mortgage News Daily.
“That just knocks the market,” said Bliss Sawyer, a loan officer at Security Home Mortgage in Orem, Utah. “We thought the Fed was going to be more aggressive in lowering rates in November and December, but because of this data, it shows there really isn’t a lot of reason for the Fed to lower rates as much as we were hoping for.
“I think we’re going to see a much slower-than-anticipated decrease in (mortgage) rates over the next couple of months,” Sawyer added.
Read more: Mortgage refinance: How to get started
The Mortgage Bankers Association calculated the average rate at 6.36% as of Friday. Rates remain more than a percentage point lower than a year ago.
Although higher average rates have taken some homeowners out of the money-saving window for refinancing, application volumes are more than double last year’s levels. Purchase activity is about 8% higher than a year earlier, without adjusting for seasonality.
“The largest constraint for many prospective homebuyers over the past year had been the lack of inventory,” Mike Fratantoni, MBA’s chief economist, said in a statement. “Now, there are more homes available in many markets across the country, and with mortgage rates still low compared to recent history, at least some potential homebuyers are moving ahead.”
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.