Mortgage Demand Up as Rates Fall for 5th Consecutive Week

A home for sale is seen in Orlando, Fla., on Dec. 8, 2020. (AP Photo/John Raoux, File)

Mortgage demand is recovering as rates continued to fall last week for the fifth consecutive time.

The news caused current homeowners and potential homebuyers to immediately react to the changes.

The total mortgage application volume, including refinances and loans to purchase a home, jumped 7.4 percent for the week ending Feb. 3, according to the Mortgage Bankers Association’s seasonally adjusted index.

The fall in the 30-year fixed mortgage rate helped lead to a rise in buyer applications last week.

“Applications rose last week as the 30-year fixed mortgage rate inched lower to 6.18 percent, its fifth consecutive weekly decline,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist, on Feb. 8.

“The 30-year fixed rate is almost a percentage point below its recent high of 7.16 percent in October 2022.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 6.18 from 6.19 percent. The same mortgage rate was at 3.83 percent the same week a year ago.

Meanwhile, points fell to 0.64 from 0.65 for loans with a 20 percent down payment.

Slight Increase in Applications

“Both purchase and refinance applications increased last week and have shown gains in three of the past four weeks because of lower rates. Overall applications remained 58 percent lower than a year ago and rates are still significantly higher, however, this week’s results are a step in the right direction,” Kan said.

With mortgage rates at their lowest level since early September, refinancing demand jumped 18 percent week to week, but remains 75 percent lower than in the same week in 2022.

The refinancing share of mortgage activity increased to 33.9 percent of total applications from 31.2 percent in the previous week.

Loan applications to purchase a home rose 3 percent for the week, but were still 37 percent lower than the same week a year ago.

“Purchase activity that was put on hold last year due to the quick run-up in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market,” Kan said.

Kan added that the average loan size on a purchase application increased to $428,500, which is the largest average since May 2022.

“This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry level housing remains undersupplied, and buyers struggle with affordability in many markets,” Kan added.

Strong Jobs Report Sees Rate Rise Over Fed’s Strategy

However, the 30 year mortgage rate soared half a percentage point at the beginning of the week, after last week’s strong jobs report and a Feb. 7 statement from Federal Reserve Chairman Jerome Powell that the central bank will continue raising interest rates.

“The reality is we’re going to react to the data,” Powell said.

“So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in.”

The central bank raised interest rates by 25 basis points at the beginning of February, as it slows down the pace of increases, but the recent reports, may lead to a larger increase next month.