The demand for mortgages increases slightly as interest rates fall

The demand for mortgages increases slightly as interest rates fall

The demand for mortgages increases slightly as interest rates fall

A For Sale sign appears in front of a home on Oak Street in Patchogue, New York on May 17, 2022.

Steve Pfost | Newspaper | Getty Images

After a month of declines, the volume of mortgage applications is picking up as current homeowners and potential buyers move to lower mortgage rates.

Applications rose 3.2% last week over the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contractual interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased slightly last week to 6.42% from 6.41%, with points rising to 0. 64 from 0.63 (including activation fee) for loans with a 20% down payment. But the trajectory of rates has been lower over the past month, as government reports showed inflation was cooling down. Interest rates slipped on Tuesday after the release of November’s consumer price index.

Mortgage applications to refinance a home loan were up 3% last week from the previous week, but were still 85% lower than the same week a year ago. The drop in rates from a high of just over 7% in October added to the still small pool of potential borrowers who could benefit from a refinance.

Home loan applications were up 4% for the week and were 38% lower than the same week a year ago. That annual comparison is now narrowing slightly as rates come down.

“The ongoing moderation in home price growth, coupled with further declines in mortgage rates, could encourage more buyers to return to the market in the coming months,” MBA economist Joel Kan wrote in a statement.

Lower rates have reduced the demand for adjustable rate mortgages. ARMs fell to 7.7% of total applications last week from just under 13% in October when rates were much higher. ARMs offer lower rates but at higher risk, as they will eventually adjust at the end of their fixed terms to whatever the market rate is at the time.

While mortgage rates fell after the CPI report on Tuesday, they could move sharply again Wednesday after the Federal Reserve announced its latest interest rate move and Fed Chairman Jerome Powell followed up with remarks.

“A friendly enough Fed could easily break range, but we have our doubts about how much fuel the Fed will want to add to the fire,” said Matthew Graham, chief operating officer of Mortgage News Daily. “If anything, the Fed is more likely to try to temper exuberance because exuberance is counterproductive to the Fed’s goals.”

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