The recent softening in house prices may be helping homebuyers swallow higher mortgage rates. Despite a rise in rates last week, demand for mortgages rebounded.
Total mortgage application volume rose 3.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.55% from 6.43%, with points remaining at 0.63 (including the origination fee) for loans with a 20% down payment.
“Although incoming data points to a slowdown in the U.S. economy, markets continue to expect that the Fed will raise short-term rates at its next meeting, which have pushed Treasury yields somewhat higher,” wrote Joel Kan, MBA’s deputy chief economist. “As a result of the higher yields, mortgage rates increased for the second straight week to their highest level in over a month.”
Despite higher rates, mortgage applications to buy a home, which had plummeted the week before, rose 5% last week. They were, however, 28% lower than the same week one year ago.
Homebuyers today are seeing house prices ease, and that may be boosting demand. While prices are still higher than they were a year ago on a national basis, some of the most expensive metropolitan markets are now seeing prices lower than a year ago. Seven states — California, Washington, Montana, Idaho, Nevada, Utah and Oregon — as well as the District of Columbia, all reported lower prices in February compared with February 2022, according to CoreLogic.
Applications last week to refinance a home loan increased 2% from the previous week and were 51% lower than the same week a year ago. One year ago, the average rate on the 30-year fixed was 5.37%, but in 2021 rates were in the low 3% range, so the vast majority of borrowers already have much lower rates than those offered today.
Mortgage rates fell slightly to start this week, as investors digested news of regional bank earnings as well as concern over the debt ceiling.
“Investors were indeed buying more bonds [Tuesday] to move away from risk that the banking sector could slide back into a more tumultuous state,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “In fact, the index that tracks regional banks fell below the levels seen during the most volatile moments of the mini banking crisis in March.”