Decline in Mortgage Demand to a 27-Year Low as Interest Rates Retract
According to the Mortgage Bankers Association’s seasonally adjusted index, mortgage interest rates experienced a slight decline last week, after a period of significant increase. Nonetheless, this decrease was insufficient to rekindle demand within the mortgage market.
Over the course of the week, total mortgage application volume dropped by 2.9% when compared to the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (amounting to $726,200 or less) decreased from 7.31% to 7.21%. Points also experienced a decline, falling from 0.73 to 0.69 (including the origination fee) for loans that required a 20% down payment.
Despite this decline in mortgage rates, the Mortgage Bankers Association’s economist, Joel Kan, noted that mortgage applications reached their lowest levels since December 1996. It is worth mentioning that rates remain significantly higher compared to the previous year, despite a mixed outlook on the economy and signs of a cooling job market.
Refinancing applications, which are highly sensitive to weekly interest rate changes, experienced a 5% decrease compared to the previous week. Furthermore, they were 30% lower than the corresponding week from the previous year. The majority of borrowers today have loans with rates below 4%. Even with high rates of home equity, borrowers are more prone to obtaining second loans for cash-out purposes, rather than opting for a cash-out refinance that would result in higher rates.
Applications for mortgages aimed at purchasing a home also experienced a decline. Specifically, they fell by 2% for the week and were 28% lower compared to the corresponding week from the previous year.
Joel Kan added that prospective buyers continue to remain on the sidelines due to the limited housing inventory and elevated mortgage rates.
To start this week, mortgage rates have increased once again. Furthermore, future economic data could potentially influence rates further. Although rates have remained relatively stable in recent weeks, it appears that 7% has become the new ‘normal’. Consequently, this has affected home prices, which had been increasing for the majority of the year, but now appear to be easing once again.