An aerial view of subdivisions that have replaced former rural fields in Hawthorn Woods, Illinois, on July 19, 2023.
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Mortgage rates fell slightly last week, but that wasn’t enough to sway potential homebuyers today.
According to the Mortgage Bankers Association, the average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) fell to 6.82% from 6.87%, and the points for loans with a 20% down payment increased from 0.57 (including origination fees) to 0.59, the lowest level since February of this year.
While interest rates have fallen by more than 20 basis points in recent weeks, mortgage applications for home purchases fell another 4% last week from the previous week, according to the MBA’s seasonally adjusted index. Purchase demand is 15% lower than the same week a year ago. One basis point is one-hundredth of a percentage point.
“Homebuying applications have declined as interest rates remain at current levels and home price growth remains strong in many markets,” MBA economist Joel Kang said in a statement.
Homebuyers are also likely waiting for interest rates to fall further. The Federal Reserve is expected to cut interest rates in September. While mortgage rates don’t strictly follow Fed policy (they roughly follow the yield on the 10-year Treasury note), they could fall if investors think inflation is easing.
“I think mortgage repayment capacity remains tight,” analyst Ivy Zelman said in an interview on CNBC’s “The Exchange.” “I would like to see mortgage rates come down 100 basis points, but if rates are in the high 5s, even 5s, I think the market will get more traction.”
Mortgage refinance applications were essentially flat, increasing just 0.3% this week. Demand is 38% higher than the same week a year ago, but is coming off very low levels. Current interest rates are slightly lower than this time last year.
“As some borrowers took advantage of this opportunity to act, refinance applications increased, driven by conventional and FHA application activity. Additionally, the conventional refinance index reached its highest level since September 2022,” Kang added.
