Cooling Rates Boosts Refis Again

Mortgage applications rose again as rates slipped for a third week and refis rallied.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — rose by 1.9%, adding to last week’s 0.5% increase.

Adjusted purchase applications declined, however, by 1%, while the unadjusted index was down 2% and 11% lower YOY. Refinances once again drove the rising data this week.

Rates declined to 7.01%, their lowest level in seven weeks.

“Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications. VA refinances had a double-digit increase for the third consecutive week, although the current level of refinancing is still well below its historical average,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“Purchase activity continues to lag despite this recent decline in rates, down 11% from a year ago, as potential buyers still face limited for-sale inventory and high list prices.”

Refinances were up 7% from the week prior and 21% from the same time last year. They accounted for 34% of applications, a small improvement.

“Higher for longer” rates are keeping purchase demand low even as existing inventory is seeing gains.

Homebuyers and sellers are often the same – sellers have to buy a new home in order to move – and have a financial disincentive to do either. Nearly 90% of mortgaged homes have a rate below 6%.

At the same time, home prices are up 53% compared to pre-pandemic levels and keep rising month-over-month.

And new construction has shown signs of slowing as builders approach the current market with caution, suggesting competition for a handful of houses will stay hot moving forward.