Mortgage Demand Declines Despite Eased Interest Rates Amid Affordability Concerns

Mortgage demand has seen a decline recently as potential homebuyers remain cautious amid ongoing affordability concerns in the housing market. Even though mortgage interest rates have eased slightly, this change has not been enough to encourage more buyers to step forward. The average contract interest rate for a 30-year fixed-rate mortgage dropped to 6.82%, indicating a small decrease from the previous week’s rate of 6.87%. Despite this drop being the lowest rate since February, mortgage applications for home purchases fell by 4% last week compared to the previous week. Currently, purchase demand is 15% lower than it was at the same time last year.

Economists suggest that the drop in mortgage applications is largely due to persistent affordability challenges. Joel Kan, an economist with the Mortgage Bankers Association (MBA), noted that factors such as stable home price appreciation contribute to the continued hesitation among buyers. Many potential homebuyers are likely waiting for more favorable interest rates, particularly as the Federal Reserve is expected to cut rates in the near future. While mortgage rates do not exactly mirror the Fed’s actions, a perceived drop in inflation could lead to slightly lower rates, giving some hope to buyers.

On the refinancing front, demand has remained stable, with a minor increase of 0.3% observed last week. This activity still shows a substantial improvement, as it’s 38% higher than the same week last year, although it follows a notably low level in previous weeks. The current lower rates compared to last year have prompted some homeowners to consider refinancing their loans, with conventional and Federal Housing Administration (FHA) applications contributing to this uptick. Analysts suggest that if mortgage rates could fall to around 5% or below, it may trigger a more significant shift in the market and invigorate buyer interest.