A key measure of home-purchase applications rose to the highest level in six weeks as a sharp drop in mortgage rates reignited demand among consumers.
The Mortgage Bankers Association’s (MBA) index of mortgage applications rose 3% last week, compared with the previous week, according to new data published Wednesday. It marked the third straight week of gains.
The data also showed that the average rate on the popular 30-year loan tumbled to 7.41% – a notable drop from just four weeks ago, when rates hovered around 7.91%. It is the lowest level for mortgage rates in two months.
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Separately, mortgage buyer Freddie Mac on Wednesday said that the average rate on a 30-year loan slid to 7.29%, down 0.15% from the previous week. The rate remains well above the pandemic-era lows of 3%.
The average rate on a 15-year mortgage – more popular among homeowners who choose to refinance – dropped to 6.67%.
The decline in rates helped to spur more housing demand, with applications for a mortgage to purchase a home also rising 4% for the week. Still, application volume remains down 20% compared with the same time last year.
Demand for refinancing also inched higher last week, rising 2% from the previous week, according to the survey. Compared with the same time last year, refinance applications are down 4%.
“U.S. bond yields continued to move lower as incoming data signaled a softer economy and more signs of cooling inflation,” said Joel Kan, MBA vice president and deputy chief economist. “Most mortgage rates in our survey decreased. Mortgage applications increased to their highest level in six weeks, but remain at very low levels.”
MORTGAGE RATES CONTINUE TO HOVER NEAR HIGHEST LEVEL SINCE 2000
The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve’s aggressive tightening campaign. Policymakers have lifted the benchmark federal funds rate 11 consecutive times since March 2021 in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their policy-setting meeting in November that another rate hike is on the table this year – and that rates are likely to remain elevated for some time. But many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.
The higher mortgage rates are not only dampening consumer demand, but they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in September, compared with the same time a year ago.
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.
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