Recent data from the Mortgage Bankers Association shows that mortgage interest rates for 30-year fixed-rate mortgages with conforming loan balances have decreased slightly to 6.82%. While this is the lowest level since February of this year and rates have dropped over twenty basis points in the last few weeks, potential homebuyers are still hesitant to make a move. Points have increased to 0.59 from 0.57, including the origination fee. Despite this decrease in rates, applications for mortgages to purchase homes dropped by 4% last week as compared to the previous week.
According to MBA economist Joel Kan, ongoing affordability challenges are a major factor in the stagnant home purchase market. With rates still at relatively high levels and home-price appreciation continuing in many markets, homebuyers are finding it difficult to make a move. Purchase demand is now 15% lower than it was at the same time last year. Analyst Ivy Zelman believes that for the market to gain more momentum, mortgage rates would need to come down significantly by at least 100 basis points.
Refinance Activity
While applications to purchase homes have decreased, applications to refinance home loans have remained relatively steady, with a slight increase of 0.3% for the week. Refinance demand is 38% higher than it was at the same time last year, although it is rebounding from an extremely low level. The activity is being driven by conventional and FHA applications, as some borrowers are taking advantage of the opportunity to refinance at lower rates.
Many potential homebuyers are waiting for interest rates to drop further, with expectations that the Federal Reserve will cut rates in September. While mortgage rates do not directly follow the Fed’s actions, they are influenced by market perceptions of inflation. If investors believe inflation is easing, rates are likely to come down. Analysts suggest that a drop of 100 basis points in mortgage rates could stimulate more activity in the housing market.
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