Mortgage rates sit at nearly 3-year high, and demand continues to shrink
Mortgage rates in the U.S. have reached a peak not seen in nearly three years, rising to 7.49% from 7.30%. This spike, further exacerbated by a 2% decline in purchase mortgage applications, reflects ongoing Federal Reserve tightenings aimed at curbing inflation. The development signifies deeper challenges for the housing market, actively impacting consumer purchasing power and home affordability. As consumers face higher rates, this could slow economic momentum, solidifying USD's status against its peers amidst concerns over cyclical growth.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's coverage aligns with our view of USD strength, particularly in light of rising mortgage rates impacting domestic demand.
How firms align
Goldman is positioned favorably with a target of 1.12, indicating support for a stronger USD amid tightening monetary policy. BofA, however, expresses a more cautious outlook with a lower target of 1.04, suggesting potential headwinds for the dollar. Details are illustrated in our internal /reports/jpmorgan and /reports/bofa pages.
What the data shows
Recent revisions indicate that the elevated mortgage rates are likely to dampen housing market activity, as shown in our research on housing dynamics in /research/housingtrends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01US mortgage rates hit 7.49%, indicating sustained Fed restrictiveness.
- 02Higher mortgage costs are likely to immobilize consumer demand in housing.
- 03Watch for housing market signals; USD strength could persist, targeting 1.075.
- 04Potential disruptions in growth outlook could lead to volatility.
Market implications
Focus will be on key housing data releases next week, particularly any signs of consumer resilience or further declines in mortgage applications. Maintaining our consensus target of 1.075 could anchor sentiment in the USD.
Risks to this view
A sudden reversal could occur if inflation data shows unexpected softness, prompting the Fed to reassess its rate hiking strategy. A significant increase in housing demand could also mitigate the impact of rising mortgage rates.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story