Interest rates drop to levels not seen since 2023, driving increased activity
Mortgage applications increased by 1.4% last week, as borrowers reacted to lower interest rates and the possibility of the Federal Reserve cutting rates later this month.
The average contract interest rate for 30-year fixed-rate mortgages dropped to 6.29%, marking its sixth consecutive weekly decline and reaching the lowest level since February 2023, according to the Mortgage Bankers Association’s (MBA) Weekly Applications Survey.
“Treasury yields have been responding to data showing a picture of cooling inflation, a slowing job market, and the anticipated first rate cut from the Federal Reserve later this month,” said Joel Kan, MBA’s deputy chief economist.
This steady decrease in rates has sparked increased activity among both homebuyers and those looking to refinance existing mortgages.
MBA’s Market Composite Index rose 1.4% on a seasonally adjusted basis from the previous week. However, on an unadjusted basis, the Index decreased by 10%, factoring in the Labor Day holiday.
The refinance index saw a 1% rise from the previous week and was up 106% compared to the same week last year. However, many homeowners still hold mortgages with rates under 5%, limiting the overall refinance potential despite the rate drop.
“With rates almost a full percentage point lower than a year ago, refinance applications continue to run much higher than last year’s pace,” Kan explained. “However, there is still somewhat limited refinance potential as many borrowers still have sub-5% rates. It is a positive development that there are homeowners who can benefit from a refinance as rates continues to move lower.”
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The seasonally adjusted purchase index grew by 2% compared to the previous week. However, on an unadjusted basis, the index was down 10% compared to the previous week and 3% lower than the same time last year.
“Purchase applications increased over the week and are edging closer to last year’s levels. Despite the drop in rates, affordability challenges and other factors such as limited inventory might still be hindering purchase decisions,” said Kan.
The share of mortgage activity attributed to refinances increased slightly to 46.7% of total applications, up from 46.4% the previous week. FHA-backed loan applications, often used by first-time homebuyers, also saw a small increase, making up 14.7% of total applications, compared to 14.6% the week prior.
Adjustable-rate mortgage (ARM) activity continued to decline, falling to 5.4% of total applications, as borrowers increasingly opted for fixed-rate loans in the face of dropping rates. The share of VA loan applications decreased slightly to 16.4%, while USDA-backed loans remained unchanged at 0.4%.
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