Uncategorized September 8, 2023

Mortgage Rates Plunge, but Homebuyers Are Still Stuck. What’s REALLY Happening in the Housing Market?

Following a sustained period of significant increases, mortgage interest rates recently experienced a modest retreat. Nevertheless, this minor dip wasn’t sufficient to breathe new life into the mortgage market.

According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume saw a 2.9% decline in the past week when compared to the previous week.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) dropped from 7.31% to 7.21%, with points decreasing from 0.73 to 0.69 (inclusive of the origination fee) for loans requiring a 20% down payment.

Despite this decline in mortgage rates, Joel Kan, an economist at the MBA, noted a significant drop in mortgage applications to the lowest level since December 1996. He attributed this decline to rates still being more than a full percentage point higher than they were a year ago, despite a mixed economic outlook and signs of a cooling job market.

Refinancing applications, which are particularly sensitive to weekly interest rate fluctuations, took a hit, falling 5% compared to the previous week and a staggering 30% lower than the same week in the previous year. Currently, the majority of borrowers enjoy rates below 4%, leading many to opt for second loans to access cash rather than risk losing their favorable rates through a cash-out refinance.

Applications for purchasing a home also suffered, declining 2% for the week and marking a 28% drop compared to the same period in the previous year. The primary reasons for this decline were the persistently low housing inventory and the elevated mortgage rates, as highlighted by Joel Kan.

As the new week began, mortgage rates once again inched higher, with their trajectory expected to be influenced by forthcoming economic data. Despite moving within a narrow range in recent weeks, the 7% mark seems to be the new benchmark. This stabilization in rates has had a cooling effect on home prices, which had been on the rise for much of the year but now appear to be moderating once more.