Slight mortgage rate dip fails to boost demand
Potential homebuyers aren’t rushing into the market despite a slight drop in mortgage rates.
The Mortgage Bankers Association reported today a 0.7% week-over-week decrease in its Market Composite Index, a measure of loan application volume. Unadjusted, the index dipped four basis points from the previous week. The average 30-year fixed mortgage rate edged lower to 6.93%, according to MBA’s data.
“Mortgage application activity was muted last week despite slightly lower mortgage rates,” MBA deputy chief economist Joel Kan said in the report.
Purchase applications remained virtually flat (-0.2%), reflecting continued hesitancy among homebuyers who await further rate decreases and more available listings. Refinance activity also declined 2% from the previous week.
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“Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6% by the end of the year,” said Kan. “Similarly, with rates remaining elevated, there is very little incentive right now for rate/term refinances.”
The refinance share of total mortgage applications dropped to 30.8%, while the adjustable-rate mortgage (ARM) share decreased to 7%. Government-backed loans (FHA, VA, USDA) saw minimal changes in their share of applications.
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Fannie Mae had indicated such a slowdown would take place. Higher rates will likely continue to dampen home sales and mortgage originations, according to Fannie’s Economic and Strategic Research (ESR) Group.
“While we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023 – even if mortgage rates remain elevated,” it said.
“We also note that the low months’ supply suggests that there will be continued upward pressure on home prices. The jump in single-family starts also beat our expectations and will likely lead to a modest upward revision to our near-term forecast.”
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