Mortgage demand is struggling to contend with what appears to be another upswing in interest rates. Homebuyers in particular are pulling back.
Total mortgage application volume rose 3.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That was all due to refinancing activity.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.80% from 6.78%, with points decreasing to 0.59 from 0.65 (including the origination fee) for loans with a 20% down payment.
That weekly average does not fully reflect a massive surge in rates last Friday following a much higher-than-expected monthly employment reading from the U.S. Labor Department for January. The average rate on the 30-year fixed jumped 29 basis points after the report’s release, according to Mortgage News Daily, and another 12 basis points Monday after a manufacturing report also came in higher than expected. Together, those two jumps made for the third biggest increase in mortgage rates since March 2020.
Even with rates lower for the bulk of last week, applications for a mortgage to purchase a home fell 1% compared with the previous week and were 19% lower than the same week one year ago.
“Purchase activity has been strong to start 2024 compared to the final quarter of 2023. However, activity is still weaker than a year ago because of low housing supply,” said Joel Kan, an MBA economist in a release.
Applications to refinance a home loan increased 12% for the week and were 1% higher than a year ago. While the weekly jump may seem like a lot, the base is so low that even a small amount of demand makes for a big weekly percentage change. The refinance share of mortgage activity increased to 35.4% of total applications from 34.2% the previous week.
Mortgage rates fell back slightly on Tuesday, but the move higher was an adjustment to surprisingly strong economic data, according to Matthew Graham, chief operation officer at Mortgage News Daily.
“A slew of Fed speakers has confirmed as much during this time. They’ve been reasonably unified in saying they still expect rate cuts in 2024, but not quite as quickly as the market had been expecting at the beginning of last week,” he added.