Homebuyer Mortgage Demand Declines Despite Interest Rates Falling to April Lows

Despite a drop in interest rates to their lowest levels since April, homebuyer mortgage demand is declining. This trend highlights ongoing challenges in the real estate market, as factors beyond interest rates continue to impact buyer behavior and mortgage applications.

Last week, mortgage rates fell to their lowest level since April, but buyers are still struggling to afford homes in today's market. Consequently, mortgage demand remained weak, with total mortgage application volume inching up just 0.5% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.08% from 7.18%, with points decreasing to 0.63 from 0.65 (including the origination fee) for loans with a 20% down payment.

Applications to refinance a home loan, which are most sensitive to weekly rate changes, increased by 5% for the week and were 7% higher than the same week one year ago.

“Treasury yields continued to move lower last week, and mortgage rates declined for the second week in a row,” said Joel Kan, MBA’s vice president and deputy chief economist. “The decline in rates led to a small boost in refinance applications, including another strong week for VA refinances. However, the overall level of refinance activity remains low.”

Applications for a mortgage to purchase a home fell by 2% for the week and were 14% lower than the same period last year. This drop was driven by a 9% decline in FHA applications, which are favored by first-time or lower-income buyers because they allow much smaller down payments than conventional loans.

“While the downward move in rates benefits prospective homebuyers, mortgage rates are still much higher than they were a year ago, and for-sale inventory remains tight,” Kan added.

Mortgage rates moved slightly lower at the start of this week, but all eyes are now on the monthly consumer price index report, set to be released Wednesday. This new inflation data will influence the Federal Reserve's next move on interest rates.

“Forecasts clearly expect a 0.3% increase in core prices, month over month,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “The difference between a result of 0.2% or 0.4% is surprisingly massive when it comes to the world of interest rates. A 0.1% or 0.5% result could easily lead to the largest rate jump or drop in months.”

Source: cnbc