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Mortgage rates moved markedly higher last week, causing overall mortgage demand to drop.
Total application volume fell 0.7% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That was the first decline in five weeks.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.75% from 6.67%, with points remaining unchanged at 0.66 (including the origination fee) for loans with a 20% down payment. That rate was just 8 basis points higher the same week one year ago.
The driver of the drop was refinance demand. It fell 3% for the week but was still 41% higher than the same week one year ago. While mortgage rates aren’t that much lower now than they were a year ago, it may be that refinance volume is so low in general that any slight move makes for a large comparison.
Applications for a mortgage to purchase a home increased 1% for the week and were 6% higher than the same week one year ago.
“Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis. Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market,” wrote Joel Kan, vice president and deputy chief economist at the MBA.
Mortgage rates have been essentially flat to start this week, according to a separate survey from Mortgage News Daily, as the market awaits the Federal Reserve meeting Wednesday. A rate cut is expected, but some analysts say it may be the last one for awhile.
“Markets know the Fed will cut and that the dot plot (aka rate outlook survey that’s updated 4 times per year and closely watched by bonds) will show a higher rate trajectory than September,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “What we don’t know is how gloomy of a dot plot or how hawkish of a Powell the market is willing to accept.”