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Weekly Mortgage Demand Remains Flat Despite Lowest Rates Since April 2023

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Mortgage rates fell for the fourth consecutive week, hitting their lowest level since April 2023, but the impact on mortgage demand was minimal. Total mortgage application volume increased by just 0.5% from 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 dropped to 6.44%, down from 6.50%. Points also decreased to 0.54 from 0.60 for loans with a 20% down payment. Despite this decline, the demand to refinance decreased by 0.1% from the previous week, although it was 85% higher than the same week last year. Most existing borrowers hold mortgages with rates below 6%, making refinancing less attractive unless substantial savings can be achieved.

Applications for home purchases rose by 1% for the week but were still 9% lower compared to the same week last year. Joel Kan, MBA’s vice president and deputy chief economist, noted that prospective homebuyers are showing patience, waiting for further rate decreases and a rise in for-sale inventory.

Mortgage rates have been stable at the start of this week, with no significant economic data expected to impact them until the monthly employment report is released next week.

US 30-Year Mortgage Rate Drops on Weak Jobs Data and Fed Rate-Cut Signals

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The interest rate for the most popular U.S. home loan plunged last week to its lowest level in 15 months. This decline followed signals from the Federal Reserve that it could start cutting its policy rate in September, alongside weak job market data bolstering financial market bets on significant reductions in borrowing costs. The average contract rate on a 30-year fixed-rate mortgage dropped 27 basis points to 6.55% in the week ended August 2, according to the Mortgage Bankers Association. This was the lowest rate since May 2023 and marked the sharpest drop in two years.

This decline offers potential homebuyers some relief in an increasingly unaffordable housing market, where home prices and borrowing costs have both risen significantly. According to Fannie Mae’s housing sentiment index for July, only 17% of respondents felt it was a good time to buy a home, down from 19% in June, with 35% stating they would rent their next residence—the highest share since 2011. Doug Duncan, chief economist at Fannie Mae, noted that this sentiment might reflect buyer fatigue or a deeper disenchantment with the market.

The drop in interest rates also presents an opportunity for homeowners who purchased at higher rates to refinance and reduce their payments. Refinancing applications rose sharply to the highest level in two years, helping to increase the refinance share of overall loan applications to 41.7%. However, purchase activity edged up by less than 1%, constrained by low inventory and high prices.

The Federal Reserve’s aggressive rate hikes in 2022 and 2023 had driven borrowing costs to their highest levels in decades. However, cooling inflation and a slowing labor market have led to signals that a policy rate cut could be on the table as early as next month. The Labor Department’s latest jobs report showed an increase in the unemployment rate to 4.3% in July and a slowdown in hiring, raising fears of an imminent recession.

This labor market data triggered a rally in U.S. Treasuries, lowering yields and pulling mortgage rates down. Interest rate futures now reflect bets that the Fed will cut its policy rate by a full percentage point by the end of this year, starting with a reduction of half a percentage point next month. Despite these developments, a significant portion of homeowners hold mortgages with rates below 4%, suggesting that mortgage rates would need to drop further to make refinancing or purchasing a new home appealing.