Recent data from the Mortgage Bankers Association (MBA) has revealed a significant uptick in home-purchase applications, marking the fifth consecutive week of growth.
This application surge is primarily attributed to the continued decline in mortgage rates, sparking renewed consumer interest.
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MBA mortgage application index experiences significant increase
The MBA’s index of mortgage applications showed a 2.8% increase last week compared to the previous week.
This application rise coincides with a notable decrease in the average rate on the popular 30-year loan, which has fallen to 7.17% – its lowest level since August.
This drop represents a substantial decrease from just a month ago when rates were around 7.91%.
MBA president highlights factors responsible for declining mortgage rates
Joel Kan, MBA’s vice president and deputy chief economist, explained the factors behind the declining rates: “Slower inflation and financial markets anticipating the potential end of the Fed’s hiking cycle are both behind the recent decline in rates.”
This easing of rates has directly contributed to increased housing demand, with mortgage applications for home purchases climbing by 35% for the week.
However, it’s important to note that application volume is still 17% lower than in the same period last year, reflecting ongoing challenges in the housing market, including low inventory and affordability issues.
Lower mortgage rates ‘revitalize’ refinancing market
The lower mortgage rates have also revitalized the refinancing market. Refinancing applications surged 14% from the previous week and are up 10% from the same week a year ago.
Kan commented on this trend, stating, “Refinance applications saw the strongest week in two months, increasing on a year-over-year basis for the second consecutive week for the first time since late 2021.”
He also noted that while overall refinance application levels remain low. The recent increases could indicate that 2023 marked the lowest point in this cycle for refinance activity, aligning with MBA’s originations forecast.
Fed officials hint at another rate hike in 2023
The housing market, sensitive to interest rate changes, had cooled rapidly due to the Federal Reserve’s aggressive rate hikes.
The Fed has raised the benchmark federal funds rate 11 times consecutively since March 2021, aiming to curb stubborn inflation and slow economic growth.
During their November policy-setting meeting, Fed officials hinted at the possibility of another rate hike this year, suggesting that rates may remain high for an extended period.
However, many economists believe the central bank has finished raising rates, a sentiment that has helped reduce the previously high mortgage rates.
Increased mortgage rates negatively impact housing market
The spike in mortgage rates over the past year has not only dampened consumer demand but also severely limited housing inventory.
Homeowners who secured low mortgage rates before the pandemic are hesitant to sell, given the current high rates. This reluctance to market has resulted in limited options for potential buyers.
A report from Realtor.com underscores this trend, showing a 4% decrease in the total number of homes for sale, including those under contract but not yet sold, in September compared to the same period last year.
The availability of houses for sale remains significantly lower, down 45.1% from the levels seen before the COVID-19 pandemic began in early 2020.
Purchase, refinance applications witness significant growth
The recent drop in mortgage rates has injected new life into the housing market, with both purchase and refinance applications witnessing significant growth.
However, the market continues to grapple with challenges such as low inventory and affordability issues, influenced by ongoing economic trends and monetary policy decisions.
As the housing market responds to these dynamic factors, it remains a crucial area of interest for consumers and industry experts.