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The demand for mortgages increases by centimeters as interest rates go lower

A For Sale sign is displayed in front of a house on Oak Street in Patchogue, New York, on May 17, 2022.

Steve Pfost | News | Getty Images

After a month of decline, loan application volume is picking up as current homeowners and prospective buyers move on to lower mortgage rates.

Applications rose 3.2% last week compared to the previous week, according to the Mortgage Bankers Association̵[ads1]7;s seasonally adjusted index.

The average contract rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) edged ever so slightly last week to 6.42% from 6.41%, with points increasing to 0.64 from 0.63 (including the origination fee ) for loans with 20% down payment. But the rate for interest rates has been lower in the past month, as government reports showed that inflation was cooling. Interest rates fell on Tuesday after the release of the consumer price index for November.

Home loan applications to refinance a home loan rose 3% last week from the previous week, but were still 85% lower than the same week a year ago. The fall in interest rates from a peak of just over 7% in October added to the still tiny pool of potential borrowers who could benefit from a refinance.

Mortgage applications rose 4% for the week and were 38% lower than the same week a year ago. The annual comparison is now shrinking slightly as prices fall.

“The ongoing moderation in home price growth, along with further declines in mortgage rates, could encourage more buyers to return to the market in the coming months,” Joel Kan, an MBA economist, wrote in a news release.

Lower interest rates have shrunk the demand for mortgages with adjustable interest rates. ARMs fell to 7.7% of total applications last week from just under 13% in October, when rates were much higher. ARMs offer lower rates, but with higher risk, since they will eventually adjust at the end of their fixed terms to whatever the market interest rate is then.

While mortgage rates fell after the CPI report on Tuesday, they could move sharply again on Wednesday, after the Federal Reserve announced its latest move on interest rates and Fed Chair Jerome Powell followed through with comments.

“A friendly enough Fed could easily break the range, but we have our doubts about how much fuel the Fed will add to the fire,” said Matthew Graham, CEO of Mortgage News Daily. “If anything, the Fed is more likely to try to curb the glut because the glut is counterproductive to the Fed’s goals.”

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