US mortgage rates fell for the first time in more than two months. However, the small drop has not encouraged more people to apply for home loans, as borrowing costs remain high. Mortgage rates are still close to their highest levels in several years.
The average 30-year fixed mortgage rate dropped to 7.32% for the week through Wednesday, down from 7.40% a week earlier, according to Freddie Mac data. Mortgage applications for home purchases fell 7% in a week. Total mortgage application volume fell 5.3% last week compared with the previous week, according to the MBA’s seasonally adjusted index reported by CNBC. The average interest rate for 30-year fixed mortgages also declined. The average contract rate for these loans, with balances of $832,750 or less, fell to 7.41% from 7.50% last week. Mortgage points also declined to 0.75 from 0.83 for loans with a 20% down payment, including the loan origination fee.
However, he added that both home purchase and refinancing applications continued to decline despite the lower rates, CNBC reported. The overall demand for mortgage loans also declined. High mortgage rates and housing costs are keeping buyers away. The recent rate drop was not enough to increase mortgage applications.
Applications for new home purchases dropped through Friday compared with the previous week, according to the Mortgage Bankers Association (MBA), as high borrowing costs and housing affordability concerns continued to keep buyers away. “The housing market continues to face significant headwinds as elevated mortgage rates and affordability pressures keep many prospective buyers on the sidelines,” MBA President and CEO Bob Broeksmit said in a statement, as quoted by Yahoo Finance. “Mortgage rates decreased for the first time in over two months,” MBA economist Joel Kan said in a release.
These sales are measured by signed contracts and offer a real-time picture of demand in the housing market, according to CNBC. Several monthly inflation reports had contributed to last week’s rate movements, CNBC reported. Refinancing demand is usually more sensitive to weekly changes in mortgage rates. However, the latest decline was smaller than some of the drops seen in previous weeks when rates were rising. Refinancing demand remains much lower than a year ago. Mortgage rates are now more than one percentage point higher than they were a year ago, leaving very few borrowers who could benefit from refinancing at a lower rate. Home purchase mortgage applications fell more sharply than refinancing applications. Buyers are responding more to high mortgage rates overall than to small weekly changes. Even though rates have started to ease, their current levels continue to make homeownership expensive. This has reduced the willingness of many buyers to take out new home loans. Pending home sales in the US also dropped sharply in September. Higher mortgage rates continued into October. Mortgage rates remained elevated after rising during September, adding to the pressure on people looking to buy homes. More homebuyers are choosing adjustable-rate mortgages . A significant share of borrowers who are still looking to buy homes are opting for adjustable-rate mortgages, or ARMs. Adjustable-rate mortgages can become more expensive later. Unlike fixed-rate mortgages, ARMs can see their interest rates change after an initial period. Their rates may rise or fall depending on market conditions when the loan resets, making them riskier for borrowers. Mortgage rates have shown little movement at the start of this week. A separate survey by Mortgage News Daily found that rates had remained relatively steady after a particularly volatile week. Oil prices have influenced recent mortgage rate movements, but the link is uncertain. Mortgage rates appeared to follow changes in oil prices this week. However, Matthew Graham, chief operating officer at Mortgage News Daily, warned against placing too much importance on this connection. The relationship between oil prices and mortgage rates has been unreliable. This suggests that oil price movements alone may not provide a dependable guide to where mortgage rates will go next. The US housing market continues to face pressure despite the latest rate decline. Mortgage rates have finally moved lower after more than two months, but falling home purchase and refinancing applications show that buyers and existing homeowners remain cautious.
Applications to refinance home loans fell 2% in a week. Applications to refinance home loans were down 59% compared with the same week last year, CNBC reported. Applications to buy homes declined 7% from the previous week and were down 18% compared with the same period last year, according to the MBA data. Adjustable-rate mortgages accounted for 10.5% of applications. The share remained unchanged as ARM interest rates stayed almost one percentage point below the rate for 30-year fixed mortgages, giving eligible borrowers a lower-rate option, MBA economist Joel Kan said, according to CNBC.
These loans usually offer lower initial interest rates than fixed-rate mortgages, making them an option for buyers looking to reduce their initial borrowing costs, according to CNBC. “It’s been highly unreliable for more than a month,” Graham wrote, as quoted by CNBC. High borrowing costs and affordability concerns continue to weigh on housing demand, according to the MBA data.
A report released by the National Association of Realtors on Tuesday showed a steep fall in pending home sales.
