Applications Soar As Rates Hit Lowest Level Since August

Mortgage applications increased again last week as cooling inflation and Fed rate expectations pushed mortgage rates down.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – increased by 2.8%, up from the week prior’s modest +0.3%.

Adjusted purchase applications fell by 0.3%, while the unadjusted index rose 35% from the week before and was 17% lower YOY.

Falling rates drove the jump, with the 30-year fixed-rate falling to 7.17%, its lowest since August 2023.

MBA Vice President and Deputy Chief Economist Joel Kan pinned the rate cooldown on disinflation and the dwindling possibility of further Fed rate hikes.

The FOMC will meet on December 12-13 and Wall Street expects the group to hold interest rates at their current 22-year high. The Central Bank’s preferred inflation gauge hit its lowest level since 2021 in October.

“For the Fed, fresh signs of softer inflation and consumer demand confirm it is well positioned to remain on hold at the December policy meeting,” EY senior economist Lydia Boussour wrote in a note.

Though Fed Chairman Jerome Powell recently made comments suggesting rate cuts aren’t officially on the table, investors are hopeful that significant policy changes will come as soon as the first half of 2024.

In response to falling rates, refinances saw their biggest gains in two months, rising for two weeks straight for the first time since 2021.

Refis were up 14% from the week prior and 10% YOY. They accounted for 34.7% of total applications, inching closer to their past-decade average of 58%.

“The overall level of refinance applications is still very low, but recent increases could signal that 2023 was the low point in this cycle for refinance activity, consistent with our originations forecast,” Kan noted.

ARMs fell to 7.4% of total applications, coming down from a brief boost while rates neared 8%.

The FHA share of total applications rose to 15% from 13.5%, with an average interest rate of 6.98%. The VA’s share increased by 0.2% to 12.8%, while the USDA’s share remained unchanged at 0.5%.

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