Despite a continued drop in mortgage rates, the demand for mortgages fell last week compared to the previous week, according to the Mortgage Bankers Association. This article will explore the factors contributing to this decline and discuss the association’s predictions for the future of the market.
Decreasing Interest Rates
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances experienced a decrease from 7.07% to 6.83%. While this decrease is significant, it is essential to note that rates are still considerably higher than they were at the start of the Covid pandemic. The Federal Open Market Committee’s projections for rate cuts and the positive news about the drop in inflation contributed to this decline. Mike Fratantoni, the MBA’s senior vice president and chief economist, stated that the 30-year fixed mortgage rate reached its lowest level since June 2023.
Despite the favorable conditions, borrowers’ response to the decrease in mortgage rates was underwhelming. Fratantoni described it as “rather tepid.” Applications to refinance a home loan dropped 2% from the previous week, even after experiencing a significant jump of 19%. However, refinance demand was 18% higher compared to the same week one year ago. Applications for a mortgage to purchase a home also declined by 1% and were 18% lower than the same period last year.
While the decline in demand is concerning, the Mortgage Bankers Association remains optimistic about the future of the market. They predict a “mild recession” in the first half of next year but believe that monetary policy and the Federal Reserve’s intention to cut its benchmark rate multiple times will support further declines in mortgage rates. This expected decrease comes just in time for the spring housing market. The association forecasts modest growth in new and existing home sales in 2024, which will support growth in both purchase originations and mortgage origination volume. They anticipate a 22% increase in origination volume to $2 trillion, with a 14% rise in purchase volume and a 56% jump in refinance demand.
Although mortgage rates continue to drop, the demand for mortgages declined last week. This tepid response from borrowers may be attributed to various factors such as economic uncertainty or individual financial situations. However, the Mortgage Bankers Association remains hopeful and expects a positive outlook for the future of the market. With further reductions in mortgage rates expected and an anticipated growth in home sales and mortgage origination volume, the spring housing market looks promising. The association’s predictions provide a glimmer of hope for both buyers and sellers in the real estate market.
Leave a Reply