Mortgage Rates Hold Steady, But Demand Stagnates Amidst High Costs and Limited Supply

The Mortgage Bankers Association’s latest report revealed that mortgage rates remained largely unchanged last week, reflecting the ongoing trend of stagnant demand for mortgages. This is the second consecutive week where both potential buyers and existing homeowners are facing challenges in the market.

Despite a slight decrease in the average contract interest rate for 30-year fixed-rate mortgages, applications for refinancing fell by 2% compared to the previous week and were 5% lower than a year ago. Purchase applications also declined slightly, with overall demand now at approximately half of its March 2020 levels, before the Federal Reserve’s rate drop sparked a surge in homebuying activity. This trend is attributed to the high costs and limited supply, which continue to restrain potential buyers, while existing homeowners are finding little motivation to refinance at the current high rates.

Looking ahead, the trajectory of inflation remains a crucial factor influencing mortgage rates. If inflation does not resume its downward trajectory, rates may not have a compelling reason to rally. Economic data on growth in the services sector and the monthly employment report, both due later this week, could create rate momentum in either direction.