Weekly mortgage demand remains stalled, as interest rates stay stubbornly high

‍KEY POINTS

1. The average contract interest rate for 30-year fixed-rate mortgages, applicable to conforming loan balances of $766,550 or less, experienced a slight decline, slipping from 6.93% to 6.91%.
2. Despite this, there was a decrease in applications to refinance home loans, with a 2% drop for the week and a 5% decrease compared to the same week one year ago.
3. Additionally, applications for mortgages to purchase homes saw a marginal decline of 0.1% from the previous week. However, this decrease was more pronounced compared to the same week one year ago, with a notable 13% decline in applications for home purchases.

Mortgage rates remained relatively stable last week, mirroring the trend observed in the previous week. Correspondingly, mortgage demand remained stagnant for the second consecutive week, with both potential buyers and current homeowners facing significant challenges.

The high costs associated with purchasing homes, coupled with limited supply, have constrained potential buyers, effectively limiting their ability to enter the housing market. Meanwhile, existing homeowners find themselves with little incentive to refinance their mortgages given the prevailing high interest rates.

According to the Mortgage Bankers Association's seasonally adjusted index, total mortgage application volume experienced minimal change, dropping by 0.6% compared to the previous week. This flat performance underscores the prevailing challenges and uncertainties within the housing market.

The average contract interest rate for 30-year fixed-rate mortgages, applicable to conforming loan balances of $766,550 or less, experienced a slight decrease, slipping to 6.91% from 6.93%. Correspondingly, points decreased to 0.59 from 0.60, including the origination fee, for loans with a 20% down payment.

Applications to refinance home loans saw a decline of 2% for the week and were 5% lower compared to the same week one year ago. Despite the availability of rates hovering around 7% for several months, the vast majority of current borrowers, approximately 90%, still hold mortgages with rates below 6%.

Applications for a mortgage to purchase a home experienced a slight decline of 0.1% from the previous week and were notably 13% lower compared to the same week one year ago. This decline reflects a significant shift in purchase demand since March 2020 when the Federal Reserve reduced rates to zero, sparking a surge in homebuying activity.

The surge in demand exacerbated the already low supply of homes in the market. However, with current mortgage rates double what they were during the homebuying boom, sellers find themselves reluctant to move, while potential buyers face increased affordability challenges.

Joel Kan, an economist at the Mortgage Bankers Association, highlighted the ongoing impact of elevated mortgage rates on homebuying activity. While purchase applications remained relatively unchanged overall, there was a slight uptick in FHA purchases during the week.

Mortgage rates saw an increase at the beginning of this week, propelled by fresh economic data indicating higher-than-anticipated manufacturing activity and accompanying price increases.

Matthew Graham, the Chief Operating Officer at Mortgage News Daily, emphasized the significance of prices in the current economic climate, attributing elevated mortgage rates to persistent inflationary pressures. Graham highlighted the pivotal role of inflation trends, suggesting that if inflation continues to resist the downward trajectory observed in late 2023, mortgage rates may lack a compelling reason to decline.

Wednesday is anticipated to bring additional data concerning growth in the services sector, while Friday marks the release of the highly influential monthly employment report. Both of these events have the potential to catalyze movements in mortgage rates, with outcomes likely influencing rate momentum in either direction.

Investors and analysts will closely scrutinize the data on services sector growth, as well as the employment report, for insights into the overall health of the economy. Positive indicators may exert upward pressure on mortgage rates, while unfavorable results could prompt a downward trajectory. As such, market participants will be attuned to these developments, as they have the potential to shape rate movements in the near term.

Source: cnbc