The recent drop in mortgage interest rates to the lowest level since May 2023 has caused a significant surge in mortgage demand from both homebuyers and current homeowners. According to the Mortgage Bankers Association, total mortgage application volume rose 6.9% last week compared to the previous week. This increase in volume was the highest level seen since January of this year.
Applications to refinance a home loan, which are highly sensitive to weekly rate changes, jumped 16% for the week and were 59% higher than the same week one year ago. While these percentage increases are substantial, it is important to note that they are coming off a very small base. The majority of borrowers currently have loans with interest rates below 5%, leaving only a small percentage who can benefit from refinancing and potentially shaving off at least 75 basis points from their current rate.
On the other hand, applications for a mortgage to purchase a home only increased by 1% for the week, but were still 11% lower than the same week one year ago. Despite the decrease in mortgage rates, purchase activity continues to show only marginal gains. There has been a slight increase in for-sale inventory in some parts of the country, leading to potential homebuyers waiting to enter the market in anticipation of even lower rates.
Following a stock market rout on Monday, mortgage rates fell further to start the week, only to rise sharply again on Tuesday after some positive economic data. This volatility in the market is reflective of the bond market’s influence on extreme rate levels. In many instances, the biggest drops in daily mortgage rates have come after quick moves to long-term highs, as noted by Matthew Graham, chief operating officer at Mortgage News Daily.
The recent decrease in mortgage interest rates has had a significant impact on mortgage demand from both homebuyers and homeowners. While refinancing applications have surged, purchase activity has only seen marginal gains, potentially influenced by market volatility and fluctuations in rates. It will be interesting to see how this trend continues to unfold in the coming weeks as the housing market reacts to changing economic conditions.
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