US Markets
Wednesday, December 20th, 2023 4:25 pm EDT
Key Points
- Decline in Mortgage Demand Despite Falling Rates: Mortgage demand experienced a decrease in the past week compared to the preceding week, despite a continuous drop in interest rates, 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 showed a notable decline from 7.07% to 6.83%, although rates remain considerably higher than at the beginning of the Covid-19 pandemic. Despite this rate reduction, borrowers’ response to the movement was described as tepid by Mike Fratantoni, MBA Senior Vice President and Chief Economist.
- Mixed Trends in Refinance and Purchase Applications: Applications to refinance a home loan experienced a 2% drop for the week, following a significant 19% increase in the previous week, according to MBA data. However, refinance demand remained 18% higher compared to the same week in the previous year. In contrast, applications for mortgages to purchase homes declined by 1% for the week and were 18% lower than the corresponding period in the previous year. These trends suggest a complex market response to changing interest rates and economic indicators.
- Optimistic Market Outlook Despite Recession Expectations: Despite the recent drop in mortgage demand, the Mortgage Bankers Association expressed optimism about the market’s future. Despite anticipating a “mild recession” in the first half of the upcoming year, the association expects positive developments. The Federal Reserve’s indication of multiple rate cuts in the next year is seen as a factor that could support further declines in mortgage rates, particularly in time for the spring housing market. The association forecasts modest growth in new and existing home sales in 2024, supporting growth in purchase originations. The expectation is for mortgage origination volume to increase by 22% in 2024 to $2 trillion, with a 14% rise in purchase volume and an impressive 56% jump in refinance demand, indicating a dynamic and potentially resilient market despite short-term fluctuations.
Last week, there was a notable decrease in mortgage demand compared to the preceding week, despite a continuous decline in interest rates, as reported by the Mortgage Bankers Association (MBA) through its seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (up to $726,200) dropped to 6.83% from 7.07%, while points increased slightly to 0.60 from 0.59 (inclusive of the origination fee) for loans featuring a 20% down payment. It’s worth noting that, even with this recent decline, mortgage rates remain considerably higher than they were at the onset of the Covid-19 pandemic.
Mike Fratantoni, Senior Vice President and Chief Economist at MBA, commented on the situation, stating that the 30-year fixed mortgage rate reached its lowest level since June 2023 due to positive news about a drop in inflation and the Federal Open Market Committee’s projections signaling a shift towards rate cuts. However, Fratantoni observed that borrowers’ response to this rate movement was relatively tepid as of the previous week.
Applications for refinancing a home loan saw a 2% decline for the week ending Friday, following a substantial 19% increase in the preceding week, according to MBA data. Despite this recent dip, refinance demand remains 18% higher than the same week last year. Concurrently, applications for mortgages to purchase homes decreased by 1% for the week and were 18% lower compared to the corresponding period the previous year.
Despite the recent drop in demand, the Mortgage Bankers Association expressed optimism for the market’s future. Even as it anticipates a “mild recession” in the first half of the upcoming year, the association foresees positive developments. With the Federal Reserve signaling its intention to cut its benchmark rate multiple times in the coming year, the group believes this trajectory in monetary policy will support further declines in mortgage rates, particularly in time for the spring housing market.
The Mortgage Bankers Association shared its predictions, stating that it expects mortgage origination volume to experience a significant increase of 22% in 2024, reaching $2 trillion. This growth is anticipated to be driven by a 14% rise in purchase volume and an impressive 56% surge in refinance demand.
Despite the current data, it is important to note that due to the upcoming Christmas holiday, the MBA will release mortgage application data for the weeks ending December 22 and 29 on January 3. This comprehensive outlook indicates a complex interplay of factors influencing mortgage demand, including interest rate fluctuations, economic projections, and market expectations for the coming year.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/20/mortgage-demand-slips-despite-drop-in-interest-rates.html
