Homebuyer demand picks up again as mortgage rates retreat below 7%

Homebuyer demand for mortgages picked up again last week as mortgage rates dipped below 7 percent, but applications remain at levels that would have been considered anemic a year ago, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA’s Weekly Mortgage Applications Survey shows requests for purchase loans were up a seasonally adjusted 4 percent last week when compared to the week before but down 46 percent from a year ago.

The dip in mortgage rates, which was driven by an encouraging inflation report, failed to rekindle interest in refinancing. With mortgage rates still more than double what they were a year ago, requests to refinance were down 2 percent week over week and 88 percent from a year ago, the MBA survey showed.

“Mortgage rates decreased last week as signs of slower inflation pushed Treasury yields lower,” said MBA Deputy Chief Economist Joel Kan in a statement. “The 30-year fixed rate saw the largest single-week decline since July 2022, dropping to 6.9 percent.”

It was the second week in a row that the MBA survey showed an uptick in purchase mortgage applications, with last week’s survey showing homebuyer demand picking up for the first time in nearly two months.

Kan said applications for all types of purchase loans were up last week, but there was “very little refinance incentive with rates so much higher than last year.”

Purchase loans accounted for nearly three-quarters (72.4 percent) of all mortgage loan applications, but the $389,400 average purchase loan request was the smallest recorded by the MBA survey since January 2021.

For conventional mortgages eligible for purchase by Fannie Mae and Freddie Mac, the average purchase loan request was $416,700. The average request for government-backed FHA, VA and USDA purchase loans was $305,800.

Requests for government-backed loans accounted for 24.6 percent of all purchase loan applications, with FHA loan requests claiming 11.9 percent purchase loan market share, VA loans 11.8 percent and USDA loans 0.7 percent.

Mortgage rates dip

The Optimal Blue Mortgage Market Indices, which are updated daily, show rates on 30-year fixed-rate loans fell to 6.62 percent on Tuesday, down 54 basis points from a 2022 high of 7.16 percent registered on Oct. 24. At 6.72 percent on Tuesday, rates for jumbo mortgages not eligible for purchase by Fannie Mae and Freddie Mac were also down from a Nov. 4 peak of 7.20 percent.

For the week ending Nov. 11, the MBA reported average rates for the following types of loans:

• For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less) rates averaged 6.90 percent, down from 7.14 percent the week before. With points decreasing to 0.56 from 0.77 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased to 7.06 percent.
• Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 6.51 percent, up from 6.50 percent the week before. But with points decreasing to 0.64 from 0.78 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 6.70 percent.
• For 30-year fixed-rate FHA mortgages, rates averaged 6.93 percent, down from 6.86 percent the week before. With points decreasing to 0.99 from 1.37 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 7.22 percent.
• Rates for 15-year fixed-rate mortgages averaged 6.27 percent, down from 6.40 percent the week before. With points decreasing to 0.73 from 1.13 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 6.45 percent.
• For 5/1 adjustable-rate mortgages (ARMs) rates averaged 5.73 percent, down from 5.87 percent the week before. With points decreasing to 0.65 from 0.92 (including the origination fee) for 80 percent LTV loans, the effective rate decreased to 5.97 percent.

Last week’s consumer price index report from the Bureau of Labor Statistics showed inflation cooling in October, raising hopes that the Federal Reserve will dial back the pace of short-term interest rate hikes in the months ahead. On Tuesday another gauge of inflation, the producer price index, also showed prices paid by businesses rose less than expected in October.

At each of its last four meetings, the Fed has implemented drastic, 75-basis point increases in the short-term federal funds rate.

The CME FedWatch Tool, which monitors futures contracts to calculate the probability of Fed rate hikes, shows traders now see an 85 percent chance of a smaller, 50-basis point increase in the federal funds rate at the Fed’s final meeting of the year on Dec. 14.

After the Fed’s last 75-basis point rate hike on Nov. 2, Fed Chair Jerome Powell said that policymakers may make smaller adjustments to the benchmark short-term interest rate in the future. But Powell warned that the federal funds rate may need to go higher and stay high longer than the 4.6 percent policymakers had projected in September.

The Fed has raised the short-term federal funds rate six times this year, bringing the target for the benchmark rate to between 3.75 and 4 percent.

Last month Fannie Mae economists said they expect higher mortgage rates and home prices will dent 2022 sales of new and existing homes by 18 percent, followed by another 21 percent decline in 2023.

In a forecast released last week, National Association of Realtors Chief Economist Lawrence Yun said he’s expecting a 15 percent drop in 2022 home sales, but a more modest 2023 decline of 7 percent followed by 10 percent sales growth in 2024.

This article was written by Matt Carter from Inman News and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].