Mortgage Demand Struggles as Interest Rates Rise.
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Mortgage demand is facing challenges due to a recent upswing in interest rates, causing homebuyers to pull back on their purchasing activity. According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume rose 3.7% last week compared to the previous week, but this increase was solely driven by refinancing activity.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased slightly from 6.78% to 6.80%, with points decreasing from 0.65 to 0.59 (including the origination fee) for loans with a 20% down payment.
However, it’s important to note that the weekly average does not fully reflect a significant surge in rates that occurred last Friday after a higher-than-expected monthly employment reading from the U.S. Labor Department for January.
The average rate on the 30-year fixed mortgage surged 29 basis points following the release of the data, and an additional 12 basis points on Monday after a manufacturing report also came in higher than expected. These two jumps resulted in the third-largest increase in mortgage rates since March 2020.
Impact on Homebuyers and Refinancing Activity
Despite lower rates for the majority of last week, applications for mortgages to purchase homes fell 1% compared to the previous week and were 19% lower than the same week one year ago. This decline can be attributed to the ongoing issue of low housing supply.
On the other hand, applications to refinance home loans increased by 12% for the week and were 1% higher than a year ago. However, it’s worth noting that even a small increase in demand can result in a significant percentage change due to the low base of refinancing activity.
The refinance share of mortgage activity also saw a slight increase, rising to 35.4% of total applications from 34.2% the previous week.
Factors Affecting Mortgage Rates
Mortgage rates experienced a slight decrease on Tuesday, but the overall trend has been an adjustment to unexpectedly strong economic data. Matthew Graham, the chief operating officer at Mortgage News Daily, explains that a number of Federal Reserve speakers have confirmed that they still anticipate rate cuts in 2024, although not as quickly as the market had initially expected.
Conclusion
In summary, mortgage demand is currently struggling to contend with rising interest rates. Homebuyers are pulling back on their purchasing activity, while refinancing activity has seen a slight increase. The recent surge in rates, driven by strong economic data, has further impacted mortgage rates. However, experts suggest that rates may gradually decline in the future, although a significant drop is not expected until 2025.
FAQ
What is the current state of mortgage demand?
Mortgage demand is struggling due to the recent increase in interest rates. Homebuyers, in particular, are pulling back.
How has the low housing supply affected mortgage demand?
While purchase activity has been strong compared to the final quarter of 2023, it is still weaker than a year ago due to low housing supply.
Did applications for mortgage refinancing increase?
Yes, applications to refinance a home loan increased by 12% compared to the previous week and were 1% higher than a year ago.
Did the recent surge in interest rates impact mortgage rates?
Yes, there was a significant surge in mortgage rates following a higher-than-expected monthly employment reading and a manufacturing report. These two jumps made for the third-biggest increase in mortgage rates since March 2020.
What is the average contract interest rate for 30-year fixed-rate mortgages?
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.80% from 6.78%.
