An aerial view shows a subdivision that has replaced the once rural landscape on July 19, 2023 in Hawthorn Woods, Illinois.
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Mortgage interest rates eased very slightly last week, but not enough to get today’s potential homebuyers off the fence.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.82% from 6.87%, with points increasing to 0.59 from 0.57 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That is the lowest level since February of this year.
Rates have dropped over twenty basis points in the last few weeks, but applications for a mortgage to purchase a home still dropped another 4% last week compared with the previous week, on the MBA’s seasonally adjusted index. Purchase demand is now 15% lower than it was the same week one year ago. A basis point is one-hundredth of a percentage point.
“Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets,” said Joel Kan, an MBA economist in the release.
Homebuyers are also likely waiting for interest rates to drop further. The expectation is the Federal Reserve will cut its rate in September. While mortgage rates don’t follow the Fed exactly (they follow loosely the yield on the 10-year Treasury), rates will come down if investors believe inflation is easing.
“I think affordability remains stretched,” said analyst Ivy Zelman in an interview on CNBC’s “The Exchange.” “We’d probably want to see mortgage rates come down 100 basis points, so I think if we had a five handle, even in the high fives, I think the market could see more momentum.”
Applications to refinance a home loan were essentially flat, up just 0.3% for the week. Demand is 38% higher than the same week one year ago, but it is coming off an extremely low level. Rates today are very slightly lower than they were last year at this time.
“Refinance applications were up, driven by conventional and FHA application activity, as some borrowers took the opportunity to act. Furthermore, the conventional refi index was at its highest level since September 2022,” added Kan.
