Rosalind Evans
While the 30-year fixed mortgage, the most common form, saw a rate reduction for the third consecutive week, there was little change in the overall mortgage demand.
The Mortgage Bankers Association’s seasonally adjusted index indicated a slight increase in total mortgage application volume by 0.5% last week compared to the week prior. This marginal increase followed a significant surge in demand the previous week.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $726,200) dropped to 6.73% from 6.77%, with points also decreasing from 0.65 to 0.64 (including the origination fee) for loans with a 20% down payment.
Contrastingly, the average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (exceeding $726,200) rose slightly to 6.80% from 6.79% for loans with a 20% down payment. This indicates a continued upward trend in jumbo loans’ rates compared to conforming loans for the second week in a row.
“The jumbo rates haven’t been this high since December 2021. The tightening liquidity conditions have forced jumbo lenders to retreat, leading to increased rates,” shared Joel Kan, an MBA economist.
Applications for refinancing a home loan fell by 2% for the week and were down by 40% compared to last year.
Mortgage applications to buy a home rose by 2% for the week, though they were down by 32% from last year. While homebuyers are slowly adjusting to higher interest rates, the continuous decline in new home listings is holding back sales. There was a greater increase in demand for Federal Housing Administration loans than conventional loans.
“First-time homebuyers make up a significant portion of FHA purchase loans. The increase indicates that despite buyer interest, activity is limited by the low supply of affordable housing,” Kan noted.
Homebuilders are taking advantage of the situation. According to the MBA, applications for mortgages to purchase newly built homes soared 17% in May compared to the same month in 2022. Alongside this, the U.S. Census reports an 18.5% rise in single-family housing starts in May compared to April.
Mortgage rates have begun this week slightly lower. Still, the situation could change on Wednesday as investors respond to Federal Reserve Chairman Jerome Powell’s testimony before the House Financial Services Committee.
The recent trends in mortgage rates and applications highlight the housing market’s persistent challenges, primarily due to a shortage of affordable inventory. Despite a drop in interest rates, the stagnant demand indicates that potential homebuyers and refinance applicants are still grappling with a volatile market. The testimony from Federal Reserve Chairman Jerome Powell this week could provide some insights into the future direction of the housing market and, consequently, impact mortgage rates and demand.
