Recent data from the Mortgage Bankers Association shows that the demand for mortgages is heavily tilted towards refinancing. Interest rates have been on a decline for the fifth consecutive week, leading to an increase in total mortgage application volume by just 1.6% compared to the previous week. The average contract interest rate for 30-year fixed-rate mortgages also decreased slightly to 6.43%. However, despite this drop, the rate remains significantly higher than it was a year ago by 78 basis points.
Applications to refinance a home loan have seen a significant increase, rising by 94% compared to the previous year. While this may seem like a substantial growth rate, it is essential to note that it is coming from a low base. Despite being slightly down last week, the consistently strong annual gains in refinancing applications suggest that borrowers are taking advantage of lower interest rates to reduce their monthly payments.
On the other hand, applications for mortgages to purchase a home rose by only 3% last week but are still 4% lower than the same period last year. The sluggish growth in home sales over the summer can be attributed to soaring home prices, which have deterred buyers. Even with the recent decline in interest rates, prospective homebuyers remain hesitant to make a purchase.
The marginal increase in purchase applications was primarily driven by demand for government loans such as FHA and VA loans. These loans appeal to lower-income buyers as they offer low or no down payment options. Given the challenging market conditions, these government-backed loans are becoming increasingly popular among buyers who may not have the means for a hefty down payment.
The current mortgage market paints a mixed picture with robust demand for refinancing but tepid interest in purchasing homes. While low-interest rates are encouraging some borrowers to refinance and reduce their monthly payments, high home prices are still a barrier for many potential buyers. As we move forward, it will be interesting to see how these market dynamics continue to evolve in the coming weeks and months.