Mortgage demand will increase when rates of interest fall
A “For Sale” sign outside a home in Albany, California, U.S., on Tuesday, May 31, 2022. Homebuyers face a deteriorating affordability situation as mortgage rates are at their highest levels in more than a decade.
Joe Raedle | Bloomberg | Getty Images
Mortgage rates fell for the second straight week last week, and that was enough to prompt both current and potential homeowners to call their lenders.
According to the Mortgage Bankers Association’s seasonally adjusted index, the volume of mortgage applications rose 7.2% last week compared to the previous week.
The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) fell to 6.77% from 6.81% the previous week, with points for loans ending at 0.65 from 0.66 (including processing fee ) dropped a 20% deposit.
Applications for a home loan rescheduling rose 6% this week, but were down 41% from the same week a year ago. Although interest rates have fallen, they are still more than a full percentage point higher than a year ago and more than double what they were in the first two years of the Covid pandemic, when there was a refinancing boom. Most borrowers today have lower interest rates than are currently available and therefore do not want to lose those interest rates even on a cash out refinance.
Mortgage applications to buy a home rose 8% this week but were down 27% from the same week a year ago.
“Interest rates, which are still more than a percentage point higher than a year ago, and low levels of inventory available for sale continue to limit home buying activity in many markets,” said Joel Kan, an MBA economist, in a press release. “The average loan size for a home loan has fallen for the third straight week as we continue to see increased activity from first-time homebuyers in the homebuyer market.”
Mortgage rates were little changed this week, but that could change on Wednesday afternoon when the Federal Reserve announces the results of its latest monetary policy meeting and updated interest rate forecasts.
“Some say the Fed will use these projections to announce another rate hike or two in 2023. While the fed funds rate does not directly dictate mortgage rates, such a move would still put significant upward pressure on interest rates of all shapes and sizes,” wrote Matthew Graham, COO of Mortgage News Daily.