Mortgage Rates Experience Significant Drop, Prompting Surge in Mortgage Demand
In Millbrae, California, a house is up for sale, signaling notable changes in the mortgage industry. Last week, mortgage rates experienced the most significant one-week drop in over a year, leading to the first uptick in mortgage demand in a month.
According to the Mortgage Bankers Association, total mortgage application volume saw a 2.5% increase last week, compared to the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances also decreased to 7.61% from 7.86%. Additionally, points fell to 0.69 from 0.73 for loans with a 20% down payment, including the origination fee.
Joel Kan, vice president and deputy chief economist at the MBA, attributed last week’s rate decrease to the U.S. Treasury’s issuance update, the Federal Reserve’s dovish tone in the November FOMC statement, and indications of a slower job market.
Conversely, the applications to refinance a home loan saw a 2% increase for the week but were 7% lower than the same week one year ago. This is due to the fact that mortgage rates are quite similar to where they were at this time last year, which has led to diminished incentive to refinance. Most homeowners already took advantage of record-low rates two years ago.
On the other hand, applications for a mortgage to purchase a home experienced a 3% rise for the week but were 20% lower than the same week a year ago. The decline in interest rates is still not enough to counteract the continually increasing home prices caused the very low supply of homes for sale.
Looking ahead, mortgage rates began the week slightly higher, but this week presents fewer economic events or reports that would affect rates. Last week’s combination of the Federal Reserve keeping interest rates unchanged and a lower-than-expected monthly employment report significantly contributed to the dramatic decrease in rates.