Mortgage demand fell last week compared to the previous week, despite a continued drop in rates, according to the Mortgage Bankers Association‘s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.83% from 7.07%, with points increasing to 0.60 from 0.59 (including the origination fee) for loans with a 20% down payment, the group said Wednesday. Even with the recent decline, rates are still much higher than they were at the start of the Covid pandemic.
“With the positive news about the drop in inflation, and the FOMC projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023,” said Mike Fratantoni, MBA senior vice president and chief economist.
“At least as of last week, borrowers’ response to this rate move was rather tepid,” Fratantoni added.
Applications to refinance a home loan dropped 2% for the week ending Friday, after jumping 19% the week before, according to the Mortgage Bankers Association. Refinance demand was 18% higher than the same week one year ago, however.
Applications for a mortgage to purchase a home declined 1% for the week and were 18% lower than the same period last year.
Despite the drop in demand, the Mortgage Bankers Association predicted good news ahead for the market, despite expecting “mild recession” in the first half of next year.
“We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market,” the group said, referring to the Federal Reserve’s recent signal that it is looking to cut its benchmark rate multiple times next year. “We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations.”
The association said it expects mortgage origination volume to increase 22% in 2024 to $2 trillion, with a 14% rise in purchase volume and a 56% jump in refinance demand.
Due to next week’s Christmas holiday, the MBA will release mortgage application data for the weeks ending Dec. 22 and 29 on Jan. 3.