Mortgage Applications Surge After Rate Drop
A slight decrease in mortgage rates spurred a significant uptick in homebuyer demand, with applications for home purchases rising by 12% from the previous week. This jump in demand reflects a growing eagerness among buyers, who had been waiting for lower mortgage rates or more housing inventory. According to the Mortgage Bankers Association’s (MBA) latest report, mortgage demand overall increased by 6.3% compared to the prior week.
The average interest rate for 30-year fixed mortgages with conforming loan balances fell from 6.90% to 6.86%, with points remaining steady at 0.70 (including the origination fee for loans with a 20% down payment). While this drop wasn’t substantial, it was enough to ignite interest from would-be buyers who had been hesitant due to previous higher rates.
Year-Over-Year Comparison Shows Stronger Buyer Activity
Homebuyer demand for mortgages also saw a significant year-over-year increase, with mortgage applications to purchase a home up 52% compared to the same week in 2023. This rise is notable given that last year mortgage rates were similarly falling, but housing inventory was extremely limited. The supply of homes for sale has since improved, helping to drive the renewed interest.
Joel Kan, an economist with the MBA, pointed out that the increase in for-sale inventory and the continued strength of the economy have contributed to sustained buyer interest despite the recent uptick in mortgage rates. As a result, the average loan size for home purchases rose to $439,200, the highest in nearly a month.
Refinancing Activity Sees a Decline
While purchase mortgage applications surged, refinancing activity saw a slight drop of 3% for the week. However, year-over-year, refinancing was still up 119%, largely due to comparisons with a weaker period in 2023. Kan noted that the decrease in refinancing was driven by a pullback in FHA and VA refinances, with fewer borrowers opting to refinance into new loans.
Interestingly, the Thanksgiving week typically sees more volatility, especially in bond markets, due to the shortened trading week. This can cause some erratic market movements, which may impact mortgage rates moving forward.
Outlook for Mortgage Rates and Market Activity
Mortgage rates remained slightly lower at the start of the following week, but analysts are watching for bigger shifts after new economic data is released. The current trends suggest that as long as rates stay relatively stable or decrease slightly, the strong homebuyer demand will likely continue, especially given the improving housing supply and resilient economic conditions.
Despite concerns over affordability, the combination of lower rates, increased home inventory, and an overall strong economy appears to be creating a more favorable environment for homebuyers heading into the final months of 2024 and into 2025.