A key measure of home-purchase applications rose for the fourth straight week as an ongoing drop in mortgage rates reignited demand among consumers.
The Mortgage Bankers Association’s (MBA) index of mortgage applications rose 3% last week, compared with the previous week, according to new data published Wednesday.
The data also showed that the average rate on the popular 30-year loan dropped to 7.37% — the lowest level in 10 weeks. That is also a notable drop from just one month ago, when rates hovered around 7.91%.
The decline in rates helped to spur more housing demand, with applications for a mortgage to purchase a home climbing 5% for the week. Still, application volume remains down 19% compared with the same time last year.
However, demand for refinancing plunged 9% for the week and remains up just 1% from the year-ago period. Although mortgage rates are falling, they remain 88 percentage points higher than they were a year ago, offering little incentive to homeowners who already locked in a lower rate.
“The purchase market remains depressed because of the ongoing, low supply of existing homes on the market,” said Joel Kan, MBA deputy chief economist. “Similarly, refinance activity will likely be muted for some time, even with the recent decline in rates, as many borrowers locked in much lower rates in 2020 and 2021.”
The interest rate-sensitive housing market has cooled rapidly following the Federal Reserve’s aggressive tightening campaign. Policymakers have raised the benchmark federal funds rate 11 consecutive times since March 2021 in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their policy-setting meeting in November that another rate hike is on the table this year — and that rates are likely to remain elevated for some time. But many economists believe the central bank is done raising interest rates, which has helped to bring down painfully high mortgage rates.
The higher mortgage rates are not only dampening consumer demand, but they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in September, compared with the same time a year ago.
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.