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Mortgage application shows positive movement amid falling interest rates

Mortgage applications make breakthrough with declining interest rates
Mortgage applications make breakthrough with declining interest rates

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As homeowners and prospective buyers look for cheaper mortgage rates, the number of mortgage applications is steadily rising again after months of declines.


The Mortgage Bankers Association’s seasonally adjusted index shows that applications rose 3.2% over the prior week.

The average contract interest rate for conforming 30-year fixed-rate mortgages increased last week from 6.41% to 6.42%.

The points for loans requiring a 20% down payment consequently increased from 0.63 to 0.64.

Since last month, rates have been declining as a result of government reports that inflation is reducing.

Tuesday interest rates

After the release of the November consumer price index on Tuesday, interest rates went down.

According to Mortgage News Daily, the average rate for a 30-year fixed mortgage was lowered to 6.28%.

The rate is currently at its lowest since the middle of September.

The drop coincides with the consumer price index for November showing a less-than-expected reading.

Investors flocked to US Treasury bonds following the study’s publication, which decreased yields.

Bond market

“The second consecutive month of reassuring CPI data continues to build a case that inflation has turned a corner,” said Matthew Graham, the CEO of Mortgage News Daily, on Tuesday.

“But rates will be careful about reading too much into that potential shift given the volatility of the data in recent months.”

“The bond market will also want to see what the Fed does with this info in tomorrow’s updated Fed rate forecasts in the dot plot.

Read also: Mortgage rates to remain the same this week as Fed prepares for rate hike

Rate movement

Beginning in January 2022, mortgage rates rose, ramping up speed throughout the spring and summer.

By the end of October, the 30-year-fixed had risen from roughly 3% to almost 7%.

According to the National Association of Realtors, existing home sales have been falling for nine consecutive months and down by 24% in October compared to the same month last year.

However, rates decreased sharply in November due to the October CPI’s weakening inflation signal.

November’s final rate came out to be 6.63%.

Some hesitantly suggested that the lower pricing might lure buyers back to the marketplace.

On the company’s quarterly earnings call with investors, Doug Yearley, CEO of luxury homebuilder Toll Brothers, acknowledged the temporary rate reduction in August.

“There are some very very modest green shoots over the last few weeks, as rates have come down,” said Yearley.

“But I am not ready to get sucked back into the conversation we had in August when we felt better.”


Real estate company Redfin claims that in November, homebuyers’ demand started to rise.

The demand index for the company went up 1.5% from a month ago.

However, it was also down 20% from the same time last year during the four weeks that concluded on November 27.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods,” said Taylor Marr, the deputy chief economist for Redfin.

“Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down.”

Rate locks

The optimism did not lead to higher mortgage rate locks for homebuyers, which generally indicate future home sales.

Black Knight, a provider of mortgage technology and data, reports a 22% decrease in rate locking from October to November.

Additionally, this year compared to last, there were 48% fewer rate locks.

“It’s still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months,” said Andrew Walden, the vice president at Black Knight.

“We’re still less affordable than when we were at the peak of the market in 2006, and you’re seeing that play out in the rate lock numbers.”

Walden underlines once more that the inventory is still 40% below ideal levels despite the homebuilders’ ongoing retreat and the scarcity of motivated sellers.

Prices and rates are still much higher than they should be in comparison to wages that, by historical standards, make housing affordable, notwithstanding dropping prices and rates.

“As we move throughout 2023, you’re going to see prices continue to soften. You’re going to see incomes hopefully continue to grow and eat up some of that gap,” said Walden.

“I think, likely, we are going to see rates come down from where they are today, but it’s going to take an extended period of time to get there.”

Mortgage applications

Last week, there were 3% more mortgage applications to refinance home mortgages.

Despite this, they were 85% lower than they had been the previous week.

The rates fell from a high of over 7% in October, which increased the small pool of possible borrowers who could benefit from a refinance.

For the week, there were 4% more house purchase applications than the week before, which is 38% fewer than in 2021.

The annual comparison is currently decreasing as rates fall.

Joel Kan, an MBA economist, said in a press release:

“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months.”

Read also: The stock market gets a good start in October as the market rallies

Rates and demand

Because of the decline in demand brought on by lower interest rates, adjustable-rate mortgages are now an option.

From 13% in October, applications for ARMs decreased by 7.7% last week.

ARMs involve a more significant risk despite having lower rates because they switch to the current market rate after their fixed maturities.

Mortgage rates dropped after the release of the CPI data on Tuesday, but they can spike again after the Federal Reserve announces its most recent interest rate change on Wednesday.

“A friendly enough Fed could easily break the range, but we have our doubts as to how much fuel the Fed will want to add to the fire,” said Mortgage News Daily chief operating officer Matthew Graham.

“If anything, the Fed is more likely to try to temper the exuberance because the exuberance is counterproductive to the Fed’s goals.”


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Opinions expressed by Market Daily contributors are their own.