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Homebuyer demand for purchase loans dropped for the fifth consecutive week last week as this month’s surge in rates eased, but rates for most mortgages continued to hover above 7 percent, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA’s Weekly Applications Survey showed homebuyer requests for purchase loans were down by a seasonally adjusted 5 percent last week when compared to the week before, and were 12 percent lower than a year ago. Requests to refinance were down 7 percent week over week and 1 percent from a year ago.

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A recent MBA survey of builders showed applications to buy new homes were up 19 percent in January from a year ago. But the lack of existing homes for sale in many markets is discouraging would-be homebuyers, said MBA Chief Economist Mike Fratantoni.

Mike Fratantoni

“This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume,” Fratantoni said, in a statement. “However, mortgage rates above 7 percent sure don’t help.”

Home sales got off to a strong start in 2024 as homebuyers took advantage of the drop in rates during November and December.

Applications for purchase mortgages posted week-over-week gains during each of the first three weeks of January, but since mortgage rates rebounded, demand for purchase loans has contracted for the last five weeks.

Mortgage rates on the rebound

At 6.93 percent Tuesday, rates on 30-year fixed-rate mortgages were up 43 basis points from a recent low of 6.50 percent registered on Feb. 1, according to loan lock data tracked by Optimal Blue.

Although rates have been on the rise this month, they have a ways to go before cracking the 2023 peak of 7.83 percent registered on Oct. 25.

While economists believe rates will eventually come back down, recent strength in the economy could mean they don’t come down as soon or as hard as some had been hoping.

Another wild card for mortgage rates is whether Congress can agree on spending bills that would avert a government shutdown, with the first four of 12 stopgap spending bills that have kept the government running set to expire after Mar. 1.

If investors lose their appetite for U.S. government debt, that could send bond yields soaring, economists at Pantheon Macroeconomics said in their Feb. 28 U.S. Economic Monitor. Because mortgage rates track 10-year Treasury yields closely, failure to come up with a long-term solution could result in rising mortgage rates again.

“Domestic investors have become relatively blasé over the ongoing dysfunction in Congress, numbed by repetition, but it triggers bafflement and nervousness among investors outside the U.S.,” Pantheon economists said. “Whether this becomes a serious problem for the Treasury market depends on a host of factors, including the outcome this week. A long [continuing resolution] into next year would calm everyone’s nerves, whereas an endless succession of mini-crises eventually could manifest itself in a significant yield premium.”

Strong economy could slow decline in mortgage rates

Source: Fannie Mae and Mortgage Bankers Association projections, February 2024.

Mortgage giant Fannie Mae’s monthly surveys of consumers show a record number of Americans in January were expecting mortgage rates to come down in the year ahead.

In January, Fannie Mae economists were expecting rates on 30-year fixed-rate loans would fall to an average of 5.8 percent during the final three months of 2024, and to 5.5 percent during Q4 2025.

In their latest forecast, economists at the mortgage giant said they still expect mortgage rates to retreat below 6 percent this year, but that there won’t be as much room for further declines in 2025. Last week, Fannie Mae projected rates on 30-year fixed-rate loans will slide to an average of 5.9 percent during the final three months of 2024, then stay on a glide path to average 5.7 percent during Q4 2025.

In their Feb. 20 forecast, MBA economists projected mortgage rates won’t drop below 6 percent in 2024, but will fall more steeply next year to an average of 5.5 percent in Q4 2025.

For the week ending Feb. 23, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $766,550 or less), rates averaged 7.04 percent, down from 7.06 percent the week before. Although points increased to 0.67 from 0.66 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also decreased to 7.23 percent.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $766,550) averaged 7.20 percent, up from 7.16 percent the week before. With points increasing to 0.57 from 0.45 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.86 percent, down from 6.91 percent the week before. With points decreasing to 0.99 from 1.03 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • Rates for 15-year fixed-rate mortgages averaged 6.70 percent, up from 6.61 percent the week before. Although points decreased to 0.68 from 0.77 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 5/1 adjustable-rate mortgages (ARMs), rates averaged 6.33 percent, down from 6.37 percent the week before. With points decreasing to 0.58 from 0.71 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.

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Email Matt Carter

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