Mortgage Rates Decrease, Stirring Demand

In the preceding week, the mortgage market experienced a substantial decline in rates, marking the most significant one-week drop in over a year. This significant rate decrease resulted in a notable upturn in mortgage demand after a month of relative stagnation.

According to the Mortgage Bankers Association’s seasonally adjusted index, the total volume of mortgage applications surged by 2.5% when compared to the previous week. Specifically, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) saw a decrease from 7.86% to 7.61%, with associated points falling from 0.73 to 0.69 (inclusive of the origination fee) for loans requiring a 20% down payment.

Vice President and Deputy Chief Economist at the MBA, Joel Kan, attributed this rate reduction to several factors, including the U.S. Treasury’s issuance update, a dovish stance adopted by the Federal Reserve in their November FOMC statement, and data indicating a deceleration in the job market.

Applications for home loan refinancing witnessed a 2% increase during the week, yet remained 7% lower than the corresponding week from the previous year. This is due to the fact that current mortgage rates are in close proximity to the rates observed at the same time in the prior year, offering limited incentive for homeowners to consider refinancing. Most homeowners had previously availed the opportunity to refinance their mortgages two years ago when interest rates were approaching historic lows, resulting in the vast majority of current homeowners carrying mortgages with rates below 4%.

Furthermore, applications for mortgage loans aimed at facilitating home purchases exhibited a 3% increase during the week. However, they were down by 20% in comparison to the same week from the previous year. The decline in interest rates, despite being noteworthy, has not been adequate to counterbalance the persistent surge in home prices. This increase in home prices is an outcome of the persistently low supply of houses available for sale in the market.

The commencement of the week indicated a minor upturn in mortgage rates, with this week expected to feature fewer economic events or reports that would exert a substantial influence on interest rates. Contrastingly, the prior week witnessed a unique confluence of factors, including the Federal Reserve opting to maintain unchanged interest rates, in conjunction with a monthly employment report that fell below expectations. These events converged to create an ideal environment for the marked reduction in interest rates.