Mortgage interest rates edged down slightly last week, yet this small change hasn’t been enough to lure potential homebuyers back into the market. According to the Mortgage Bankers Association (MBA), the average rate for a 30-year fixed mortgage with conforming loan balances decreased to 6.82% from 6.87%, with points rising to 0.59 from 0.57 for loans with a 20% down payment. This rate is the lowest since February of this year.
Despite a drop of over twenty basis points in recent weeks, mortgage applications for home purchases fell another 4% last week, as reported by the MBA’s seasonally adjusted index. Current purchase demand is 15% lower than it was at this time last year. Joel Kan, an economist at MBA, noted, “Purchase applications decreased as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets.”
Prospective homebuyers appear to be waiting for a more significant drop in interest rates. There is speculation that the Federal Reserve may cut rates in September, which could potentially lead to lower mortgage rates if investors see signs of easing inflation. Mortgage rates generally follow the yield on the 10-year Treasury, rather than moving directly with Fed rates. Analyst Ivy Zelman commented, “Affordability remains stretched. We’d probably want to see mortgage rates come down by about 100 basis points. Even rates in the high fives could spur more market activity.”
Meanwhile, applications to refinance home loans saw a marginal increase of 0.3% for the week. However, demand for refinancing remains 38% higher than a year ago, albeit from a very low base. Kan added, “Refinance applications were up, driven by conventional and FHA application activity, as some borrowers took the opportunity to act. Furthermore, the conventional refi index was at its highest level since September 2022.”
The housing market continues to grapple with affordability challenges and fluctuating interest rates, leaving many potential buyers and homeowners in a holding pattern.
