Applications are up and rates are down
US mortgage rates unexpectedly plunged last week to their lowest level for more than four months, and a jump in applications has also spurred optimism that a busier market is around the corner.
The Mortgage Bankers Association (MBA) said on Wednesday that the average US 30-year fixed mortgage rate slid to 6.87% last week, a welcome dip below a 7% mark that’s proven prohibitive for many would-be buyers across the country.
That drop contributed to a boost in refinances, which increased to their highest level since August of 2022, while applications were up 3.9% over the week prior as the market started to gather pace.
After a prolonged cooldown throughout 2023 and the opening months of this year, spring and early summer have seen a healthy level of mortgage market activity, according to Richmond, Virginia-based senior loan officer Kristin O’Neil (pictured top) of Open Door Lending.
She told Mortgage Professional America that while a standard midsummer slowdown had taken effect in recent weeks, prospects for the market appeared stronger than they had been for a long time. “June and July were some of the strongest months I’ve seen in well over a year,” she said.
“We had a ton of momentum going into the summer, but it does seem to be cooling a bit. However, I think that’s pretty typical for this time of year – we often have a few-week lull when families will vacation and take a short hiatus from their home search.”
Mortgage applications rebounded by 3.9% after two weeks of declining application activity, according to the latest survey by the Mortgage Bankers Association (MBA).
— Mortgage Professional America Magazine (@MPAMagazineUS) July 17, 2024
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Is a Fed rate cut on the way?
Borrower optimism on the market appears to be growing, O’Neil suggested, with FHA and VA streamlines especially prominent on the refinancing front.
Expectations for a potential interest rate cut by the Federal Reserve have recently surged on the back of a loosening labor market and inflation’s continued downward trajectory – but many buyers are prepared to push ahead with a move even before rates drop further, according to O’Neil.
That’s partly because of the risk that home prices will start climbing quickly if and when the Fed does finally cut. “I’m not hearing as many potential homebuyers wanting to wait for rate cuts before purchasing,” she said.
“I think many homebuyers who have educated themselves on the market are realizing that we will likely see a spike in home prices once rates do drop and are choosing not to wait to purchase. We know rates will drop – it’s just a matter of when and how much.”
Education of critical importance in current market
The consumer price index (CPI) has now fallen for three consecutive months, according to most recent data, a development that’s seen traders price in a 100% probability of the Fed slashing its key rate in September.
Top of mind for brokers amid the shifting outlook, according to O’Neil, should be education – making sure clients have as much information as possible to make the right choice in both the short and long term. Hers is an “educational and holistic” approach to the mortgage process, she said.
That includes taking a rational and hard-headed outlook on whether buying a property is the right move. “It can often be easy to get swept up in the romance of purchasing a home, but I try my best to make sure we’re looking at the financial piece from all angles,” she said.
So-called discount points – fees paid to a lender to whittle down the interest rate on a mortgage – has emerged as a particularly hot topic of discussion among clients during the past 12 months, O’Neil said. That process normally sees the lender reduce the interest rate by a specified amount based on a fee payment of 1% of the mortgage amount.
A detailed conversation about that option, she added, must include a discussion of what it could mean for refinancing down the line. “I always tell buyers that there are two different things at play here. While I can help you determine what makes the most financial sense long term, there is also the importance of what helps you sleep at night,” she said.
“I also want to make sure that I’m helping my clients position their equity the best that we can. One of my main concerns is that buyers who are purchasing with zero down will be limited with their refinance opportunities in the near future due to the lack of equity.”
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