An aerial view of Hawthorne Woods, Illinois, on July 19, 2023, shows a patch of land that has replaced what was once a rural landscape.
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Mortgage rates dropped slightly last week, but not enough to put today’s potential homebuyers off the fence.
The average contract interest rate for a 30-year fixed-rate mortgage fell from 6.87% to 6.82% for conforming loan balances ($766,550 or less) and rose from 0.57 (including origination fee) to 0.59 for loans with 20% down, according to Mortgage Banker Association’s statement. This is the lowest level since February this year.
Interest rates have fallen by more than 20 basis points over the past few weeks, but mortgage applications for home purchases were still down 4% last week from the previous week, according to the MBA’s seasonally adjusted index. Current buying demand is down 15% from the same week a year ago. A basis point is one hundredth of a percentage point.
“Purchase applications declined as affordability challenges persist at current interest rate levels and home price appreciation remains strong in many markets,” MBA economist Joel Kan said in the release.
Homebuyers may also be waiting for interest rates to fall further. The Fed is expected to cut interest rates in September. While mortgage rates don’t exactly follow the Fed (they loosely track the yield on the 10-year Treasury note), rates will fall if investors believe inflation is slowing.
“I think affordability is still stretched,” analyst Ivy Zelman told CNBC’s “The Exchange.” “We probably want to see mortgage rates come down 100 basis points, so I think , if we had five basis points, even at the highs, I think the market would see more momentum.”
Home loan refinancing applications were essentially flat, rising just 0.3% for the week. Demand is 38% higher than the same week a year ago, but is off extremely low levels. Rates are slightly lower today than they were this time last year.
Kan added, “Refinance applications increased, driven by conventional and Federal Housing Administration (FHA) application activity, with some borrowers taking the opportunity to take action. Additionally, the Conventional Refinance Index is at its lowest level since September 2022 the highest level.
