A sharp drop in mortgage interest rates does little to increase demand
A home for sale in the Mission Hills area of Los Angeles on Tuesday, October 11, 2022 in Mission Hills, CA.
Brian Van Der Brug | Los Angeles Times | Getty Images
Mortgage application volume rose 2.7% last week compared to the previous week, according to the Mortgage Bankers Association̵[ads1]7;s seasonally adjusted index. An additional adjustment was made for Veterans Day.
The small increase followed a government report last week that showed inflation may be starting to ease. This in turn led to bond yields plunging and mortgage interest rates with them. Thursday saw the sharpest one-day drop in the average interest rate on the 30-year fixed mortgage since daily record-keeping began in 2009.
On a weekly average, the rate on 30-year fixed-rate loans with matching loan balances ($647,200 or less) fell to 6.9% from 7.14%, with points reduced to 0.56 from 0.77 (including the origination fee) for loans with a 20% advance payment.
On a daily basis, the rate only fell 60 basis points on Thursday, according to a separate survey by Mortgage News Daily.
Applications to refinance a mortgage fell 2% for the week and were 88% lower than the same week a year ago. The rate cut came towards the end of the week, and Friday was a federal holiday, Veteran’s Day, so it is possible that demand for refinancing has not yet fully responded to the rate drop.
Applications for home equity loans, which typically do not respond quickly to interest rate changes, rose 4% for the week and were 46% lower than the same week a year ago.
“Purchase applications increased for all loan types, and the average purchase loan fell to the smallest amount since January 2021,” said Joel Kan, a Mortgage Bankers Association economist.
Loan sizes may fall due to falling house prices or potentially more first-time buyers re-entering the market at entry level.
Mortgage rates didn’t change much to start this week, but the rate on the US 10-year treasury fell on Tuesday, first thing in the morning after a monthly reading of US producer prices rose at a slightly slower pace than expected.
They fell further later, hitting a nearly six-week low, after news broke that missiles had hit Poland, killing two people. It triggered fears of greater political risk in the already war-torn region. Mortgage interest rates loosely follow the return on the 10-year treasury.
