Mortgage Demand Rebounds as Interest Rates Slide
In a sign that the housing market may be starting to pick up some momentum, mortgage demand rose last week as interest rates continued to decline.
According to the Mortgage Bankers Association’s seasonally adjusted index, total application volume increased by 3% from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) dropped to 7.41% from 7.61%, and points decreased to 0.62 from 0.67 for loans with a 20% down payment.
Joel Kan, MBA’s deputy chief economist, commented on the trend, saying, “U.S. bond yields continued to move lower as incoming data signaled a softer economy and more signs of cooling inflation. Most mortgage rates in our survey decreased, with the 30-year fixed mortgage rate decreasing to the lowest rate in two months. Mortgage applications increased to their highest level in six weeks, but remain at very low levels.”
While there was a 2% increase in applications to refinance a home loan, rates today are about 75 basis points higher than they were a year ago. Most homeowners with mortgages today have rates far lower than they would get now. Applications for a mortgage to purchase a home also saw a 4% increase, but were still 20% lower than one year ago. The average loan size on a purchase application was $403,600, the lowest since January 2023, indicating a gradually increasing first-time homebuyer share.
Despite this increase in mortgage demand, the housing market remains weak, with October sales of existing homes dropping to the lowest level in 13 years, according to a report from the National Association of Realtors.
While mortgage rates have moved slightly lower, analysts are not expecting any major changes in the near future. Matthew Graham, chief operating officer of Mortgage News Daily, stated, “The market has clearly shifted gears into holiday mode with light volume and liquidity greasing the skids for random volatility without any fundamental justification.”
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