Sharp drop in mortgage rates does little to boost demand
A home for sale in the Mission Hills area of Los Angeles Tuesday, Oct. 11, 2022 in Mission Hills, CA.
Brian Van Der Brug | Los Angeles Times | Getty Images
Mortgage application volume rose 2.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made for the Veteran’s Day holiday.
The small increase followed a government report last week showing that inflation may be starting to ease. That, in turn, sent bond yields plunging and mortgage rates with them. Thursday saw the sharpest one-day drop in the average rate on the 30-year fixed mortgage since daily record-keeping began in 2009.
On a weekly average, the rate on the 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.9% from 7.14%, with points decreasing to 0.56 from 0.77 (including the origination fee) for loans with a 20% down payment.
On a daily basis, the rate on Thursday alone dropped 60 basis points, according to a separate survey from Mortgage News Daily.
Applications to refinance a home loan fell 2% for the week and were 88% lower than the same week one year ago. The rate drop came toward the end of the week, and Friday was a federal holiday, Veteran’s Day, so it is possible refinance demand has yet to react fully to the rate drop.
Mortgage applications to purchase a home, which don’t generally react quickly to interest rate changes, increased 4% for the week and were 46% lower than the same week one year ago.
“Purchase applications increased for all loan types, and the average purchase loan dipped to its smallest amount since January 2021,” said Joel Kan, a Mortgage Bankers Association economist.
Loan sizes may be falling too due falling home prices or potentially more first-time buyers getting into the market again at the entry level.
Mortgage rates did not move much to start this week, but the yield on the U.S. 10-year Treasury dropped Tuesday, first in the morning after a monthly read on U.S. producer prices increased at a slightly slower pace than expected.
They fell further later, hitting a nearly six-week low, after news broke that missiles hit Poland, killing two people. That sparked fears of greater political risk in the already war-torn region. Mortgage rates loosely follow the yield on the 10-year Treasury.