Pique your interest: Mortgages, consumer credit

PIQUE YOUR INTEREST: MORTGAGES, CONSUMER CREDIT

Two morsels of economic data hint that high interest rates and tighter credit conditions are doing their damage.

The cost of financing home loans cooled from blistering to merely scorching last week, and potential borrowers approved.

The average 30-year fixed contract rate (USMG=ECI) shed 11 basis points to 7.18%, according to the Mortgage Bankers Association (MBA).

This prompted a 1.8% increase in applications for loans to buy homes (USMGPI=ECI), and refi applications (USMGR=ECI) to grow by 4.5%.

Together, the two metrics amount to a 2.6% improvement in overall mortgage demand.

"Mortgage rates fell last week on the news of a slowing job market, with wage growth at the slowest pace since 2021, and the Federal Reserve’s announced plans to ease quantitative tightening in June and to maintain its view that another rate hike is unlikely," says Mike Fratantoni, chief economist at MBA.

The 30-year fixed rate is now 70 basis points hotter than the same week last year, while purchase loan applications - considered among the more forward-looking housing indicators - is off about 17% from a year ago.

Elsewhere, consumer credit balances (USCRED=ECI) grew by $6.27 billion in March, undershooting the $15 billion consensus by a mile and marking an abrupt 58.3% deceleration from February's growth.

Broken down, the report from the Federal Reserve showed non-revolving credit - which covers big-ticket items such as cars and college tuitions - accelerated by 42.6% to $6.12 billion.

But revolving credit - which includes credit cards - increased by a mere $152 million.

Even so, total revolving credit outstanding is up 7.8% from last year.

This reflects "strong consumer spending and signs of weakness among poorer households who have not shared in the gains in asset prices since the pandemic," writes Grace Zwemmer, associate U.S. economist at Oxford Economics. "However, the trend in revolving credit growth is still downward as it continues to move toward pre-pandemic levels."

The graphic below shows the downward trend in consumer expectations and the lowest saving rate since October 2022. And while revolving credit balance growth is slowing, consumers are still busting out there plastic more than they did in the pre-pandemic "normal."

(Stephen Culp)

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