Rosalind Evans
The mortgage market landscape exhibits a complex interplay of declining interest rates and waning mortgage demand. According to the Mortgage Bankers Association’s (MBA) seasonally adjusted index, there has been a notable decrease in mortgage applications despite a drop in rates. This trend poses intriguing questions about the housing market’s future, especially in the context of economic forecasts and buyer behaviour.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) recently dipped to 6.83%, a decrease from the previous 7.07%. This decrease was accompanied by a slight increase in points to 0.60, including the origination fee for loans with a 20% down payment. However, these rates are still considerably higher than those seen at the onset of the Covid pandemic.
Mike Fratantoni, MBA’s Senior Vice President and Chief Economist, highlighted the recent decrease, “With the positive news about the drop in inflation, and the FOMC [Federal Open Market Committee] projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023.” Yet, he noted that the borrowers’ response to this adjustment was “rather tepid.”
The data reflects a mixed response from potential homeowners and refinancers. Refinance applications dipped by 2% in the week ending Friday, following a significant 19% surge the week before. Despite this decline, refinance demand was 18% higher than the same week a year ago. Similarly, applications for purchasing a home fell by 1% for the week and were 18% lower compared to the same period in the previous year.
Despite the current slump in demand, the MBA remains optimistic about the future. They anticipate a “mild recession” in the first half of the following year but predict favourable housing market conditions afterward. “We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market,” stated the MBA, referencing the Federal Reserve’s plan to reduce its benchmark rate multiple times in the coming year. The association foresees a 22% increase in mortgage origination volume in 2024, reaching $2 trillion, with a 14% rise in purchase volume and a 56% surge in refinance demand.
The current state of the mortgage market is a complex amalgam of fluctuating interest rates and varying consumer responses. While recent trends show a decline in mortgage applications, the industry outlook for 2024 remains positive, buoyed by expected rate cuts and an anticipated resurgence in both new and existing home sales. As the market navigates through these changing dynamics, stakeholders will keenly observe how these trends unfold, particularly in light of the MBA’s projections for the coming year.
