Drop in Mortgage Interest Rates Sparks Increase in Loan Applications
According to the Mortgage Bankers Association’s seasonally adjusted index, there was a significant rise in mortgage application volume last week due to a drop in mortgage interest rates. The total volume increased by 10.4% compared to the previous week.
Mortgage Rates and Loan Balances
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) declined to 6.75% from 6.81%. This decrease was accompanied by an increase in points to 0.62 from 0.61 (including the origination fee) for loans with a 20% down payment. It was the lowest rate witnessed in the past three weeks.
Factors Influencing Mortgage Application Rise
MBA’s Vice President and Deputy Chief Economist, Joel Kan, stated that mortgage rates dropped across all loan types due to the decrease in Treasury yields following incoming inflation data. This decline in rates contributed to the increase in mortgage applications.
Home Purchase and Mortgage Applications
Last week, there was a 9% rise in applications for mortgages to purchase homes. However, despite this increase, the volume was still 20% lower compared to the same week in the previous year. Mortgage rates were approximately 52 basis points higher one year ago. Nevertheless, the recent drop in rates appeared to entice buyers.
Impact on Homebuyers
Despite unfavorable weather conditions, potential buyers showed interest in purchasing homes. In Detroit, for example, individuals braved the cold and snow to visit an open house of a recently renovated 4-bedroom, 3-bathroom home listed at $254,500. Although this price is more than twice the Detroit median price, it is still less than the national median price. Nakita Bell, a prospective buyer currently renting in Detroit, was prompted to consider buying due to the recent drop in rates.
Bell expressed, “I know I’m never gonna get 4%, but what I don’t want is 9, 10, 11, and 12%. It is not a credit card, it’s a house.”
Opportunities for Current Homeowners
Lower rates are also benefiting current homeowners by providing an opportunity to save money. Applications to refinance home loans increased by 11% compared to the previous week and were 10% higher than the same week in the previous year. Although a majority of current borrowers already have rates lower than those offered today, the recent drop in rates still has a positive impact on those with higher rate loans.
