Following weeks of increase, last week saw a decline in mortgage applications, attributed to heightened competition among buyers for a limited housing supply.
The Mortgage Bankers Association’s seasonally adjusted index reports a 7.2% week-over-week decrease in total mortgage application volume.
The decrease was driven by a decline in buyer demand, partially offset by a slight increase in refinance interest.
The typical interest rate for most 30-year fixed-rate home mortgages, especially for loans up to $726,200, stayed at 6.78%. However, points, which include the origination fee, rose slightly from 0.63 to 0.65 for loans with a 20% down payment.
Increased Mortgage Rates Mean Added Monthly Costs
Mortgage rates have doubled compared to a year ago, significantly increasing the cost of home buying. Sellers attempt to assist buyers, but the market downturn dampens mortgage demand. With rates hovering, prospective buyers face additional monthly fees.
Despite a growing inventory of homes for sale, affordability remains a challenge. Some builders and sellers innovate by offering solutions to help potential homebuyers lower their mortgage rates and monthly payments.
With homes becoming more affordable due to lower rates, more buyers should be entering the market, creating increased competition among potential homebuyers.
However, mortgage applications for home purchases dropped by 11% last week compared to the previous week and showed a 20% decline compared to last year.
The MBA economist Joel Kan said that the scarcity of existing housing options restricts choices for potential buyers, coupled with sustained high home-price growth, forming a dual challenge that hampers overall home purchase activity.
Low Mortgage Rates Raise Home Prices
On the other hand, the number of people borrowing for home purchases has increased, hitting $444,100 last week, the highest since May 2022. This phenomenon is happening because lower mortgage interest rates are causing home prices to rise.
Furthermore, a shortage of available homes limits potential buyers’ choices and increases home-price growth. This combination acts as a double constraint, continuing to impede home purchases.
Additionally, insufficient housing supply may lead returning prospective buyers to outpace available home supplies, escalating market competition.
A decrease in mortgage rates may attract more buyers, intensifying the already high heat in the housing market, especially when the inventory of homes is below average. If homeowners find compelling reasons to sell, the real estate market will move steadily, even with low rates.
Refinancing applications for home loans rose by 2% for the week and showed a 3% increase compared to last year.
Although most current homeowners have loans with rates lower than today’s, the current interest rates are a whole percentage point lower than they were in October, offering potential benefits for those who can take advantage.
People Should Expect Changes
In the past two weeks, mortgage rates have fluctuated little, but this might change soon. The Federal Reserve convenes on Wednesday, and though experts aren’t anticipating immediate changes to the benchmark interest rate, unexpected developments could arise.
Matthew Graham, Chief Operating Officer at Mortgage News Daily, pointed out that if the Fed is to influence mortgage rates on Wednesday, it would likely be through the market’s interpretation of comments regarding the future rather than any immediate changes.
The monthly employment report scheduled for Friday could influence markets and cause fluctuations in mortgage rates, depending on the information it reveals about the overall state of the economy.