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Weekly Mortgage Demand Drops Amid Affordability Challenges

Weekly Mortgage Demand Drops Amid Affordability Challenges

After experiencing a sustained increase in recent weeks, mortgage demand took a notable dip last week, driven by heightened competition within a limited supply of homes. According to the Mortgage Bankers Association’s seasonally adjusted index, the total mortgage application volume witnessed a 7.2% decline compared to the previous week.

Buyer demand was the primary factor contributing to this decline, counteracting a slight increase in refinance demand. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) remained steady at 6.78%, accompanied by an increase in points from 0.63 to 0.65 (including the origination fee) for loans with a 20% down payment.

Applications for mortgages to purchase homes saw an 11% drop last week compared to the previous week and were 20% lower than the same week a year ago. Joel Kan, an economist at the Mortgage Bankers Association, emphasized the impact of low existing housing supply, limiting options for prospective buyers and contributing to elevated home-price growth, resulting in a one-two punch that continues to constrain home purchase activity.

Over the past several weeks, the average loan size for purchase applications has steadily risen, reaching $444,100 last week, the highest since May 2022. Lower mortgage rates are intensifying pressure on home prices and attracting more buyers into the market, subsequently increasing competition.

In contrast, applications to refinance home loans experienced a 2% increase for the week and were 3% higher than the same week one year ago. While few current homeowners have loans with interest rates higher than today’s rates, the full percentage point decrease in interest rates since October offers potential benefits.

Although mortgage rates have remained relatively stable in the past two weeks, the upcoming Federal Reserve meeting poses potential changes. While no immediate changes to the benchmark interest rate are expected, there is always the possibility of market-moving news depending on the interpretation of the Fed’s comments about the future.

Looking ahead, Friday’s monthly employment report is anticipated to impact markets and could influence mortgage rates in either direction based on its insights into the broader economy.

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