Demand for mortgages falls again even if interest rates fall further

A “For Sale” sign in front of a home in Sacramento, California, Monday, Dec. 5, 2022.
David Paul Morris | Bloomberg | Getty Images
Lower mortgage rates are drawing some current homeowners back into the refinancing market, but not enough to offset the drop in demand from home buyers.
Mortgage application volume fell 1[ads1].9% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) fell to 6.41% from 6.49%, with points reduced to 0.63 from 0.68 (including the origination fee) for loans at 20% decrease payment. It is 73 basis points lower than a month ago, but still more than three full percentage points higher than a year ago.
Applications to refinance a mortgage rose 5% for the week, but were still 86% lower than the same week a year ago. There are still precious few current borrowers who can benefit from a refinance at today’s higher interest rates. The refinancing share of mortgage activity increased to 28.7% of total applications from 26.1% the previous week.
Applications for mortgages to buy a home fell 3% for the week and were 40% lower than the same week a year ago.
“Buying activity slowed last week, with a drop in conventional purchase applications partially offset by an increase in FHA and USDA loan applications,” noted Joel Kan, an MBA economist in a release.
The average loan size for homebuyer applications fell to $387,300 — the lowest level since January 2021, consistent with slightly stronger public applications and a rapidly cooling home price environment, according to Kan.
Mortgage rates haven’t moved much this week, and no major economic news has made headlines. The next big shift is likely to come next week, with the much-anticipated monthly reading on inflation.