Mortgage Demand Slides 9.4% Despite Year-End Interest Rate Drop

Mortgage demand saw a decline towards the end of 2023 despite a notable decrease in interest rates in December. The Mortgage Bankers Association’s data, adjusted for the holiday season, indicated a 9.4% drop in total application volume by the week ending Dec. 29 compared to two weeks earlier.

Although the average rate for a 30-year fixed mortgage decreased by year-end to 6.76%, it was slightly higher than the previous week, yet significantly lower than the mid-October high of 8%. Joel Kan, MBA’s vice president, attributed this trend to the market’s response to slowing inflation and potential rate cuts by the Federal Reserve, fostering optimism but not yet translating into increased purchase applications.

Refinance applications soared by 15% compared to a year ago, as homeowners seek opportunities despite the majority already benefiting from historically low rates during the pandemic. Conversely, mortgage applications for home purchases ended the year 12% lower, signaling the ongoing struggle with limited inventory and soaring home prices.

As rates hover around 6%, the critical question emerges: will this stability be enough to encourage hesitant sellers to enter the market? While builders remain a positive force, offering potential rate reductions, new homes come at a premium, impacting the housing supply dynamics.

Recent movements in mortgage rates, rising slightly and currently resting in the 6% range, are being closely watched. However, experts like Matthew Graham from Mortgage News Daily caution against interpreting these shifts as a definite move towards higher rates. Instead, upcoming economic data, such as the Federal Reserve meeting minutes and the monthly employment report, will likely steer future rate trends.