Key Metrics Home purchase Applications surged last week as mortgage rates fell to their lowest levels in more than a year.
Mortgage Bankers Association (MBA) Home loan application New data released Wednesday showed mortgage rates rose 6.9% in the week ending Aug. 2. At the same time, the average rate on the popular 30-year mortgage fell to 6.55% from 6.82% last week, the lowest level since May 2023.
“Mortgage rates fell across the board last week,” said Joel Kan, deputy chief economist at the MBA. He said the rate declines came after “dovish rhetoric from the Federal Reserve and weak jobs data raised concerns that the economy would slow more quickly than expected.”
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Homes in Centreville, Maryland on April 4, 2023. (Photographer: Nathan Howard/Bloomberg via Getty Images/Getty Images)
The drop in interest rates also led to a surge in refinance applications, which increased 16% that week and 59% compared to the same week a year ago.
Refinancing essentially allows homeowners to take out a new loan against their property, usually to pay off the original mortgage. Refinancing has several benefits, including lower interest rates, lower monthly payments, and shorter loan terms.
Rising home prices provide homeowners with the opportunity to refinance on better terms, but persistently high mortgage rates have made many homeowners hesitant to refinance recently.
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Currently, roughly 80% of mortgage holders put down less than 5% on their mortgages, according to a Zillow survey.
A home in Hercules, California, on August 16, 2023. (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)
Despite the decline in mortgage rates, purchase applications remained weak last week. Mortgage applications to buy a home increased just 1% this week and are 11% lower than last year.
“Despite lower interest rates, there has been only a slight increase in purchasing activity,” Kang said. “The inventory of homes for sale has begun to gradually increase in some parts of the country, and homebuyers may be waiting for the right time to enter the market given the prospect of lower interest rates.”
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Rising mortgage rates over the past three years have created a “golden handcuff” effect on the housing market: Sellers who locked in record-low mortgage rates of less than 3% when the pandemic began are becoming reluctant to sell, further restricting supply and leaving eager would-be buyers with few options.
Economists predict mortgage rates will remain high for most of 2024, then Federal Reserve Even if they start cutting rates, they are unlikely to return to the lows seen during the pandemic.
