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Demand for purchase mortgages picked up again last week as would-be homebuyers continued to take advantage of falling rates, according to a weekly survey of lenders by the Mortgage Bankers Association (MBA).

Purchase mortgage applications were up a seasonally adjusted 4 percent last week compared to the week before, but down 18 percent from a year ago, according to the MBA’s latest Weekly Mortgage Applications Survey.

With mortgage rates continuing to fall from peaks seen in late October, demand for purchase mortgages has picked up in five out of the last six weeks. (Demand for purchase loans was down 0.3 percent week-over-week during the week ending Dec. 1, even after adjusting for the Thanksgiving holiday).

Demand for refinancing has roared back, jumping 19 percent last week compared to the week before and 27 percent from a year ago.

Mike Fratantoni

“Borrowers who had seen rates near 8 percent earlier this fall are now seeing some lenders quote rates below 7 percent,” MBA Chief Economist Mike Fratantoni said, in a statement. “Refinance volume picked up in response to this drop in rates, with a particularly notable increase for FHA and VA refinance applications.”

In a Nov. 17 forecast, MBA economists said they expected purchase loan originations to grow 15 percent next year, to $1.53 trillion, and refinancing originations to increase by 56 percent, to $490 billion.

Fannie Mae economists on Nov. 13 forecast that purchase loan originations will grow by only 10 percent in 2024, but there’s a potential for 70 percent growth in refinancing next year, to $428 billion.

Fratantoni said purchase loan volume remains subdued from a year ago “as prospective homebuyers are still challenged by a lack of inventory, even as rates have decreased.”

Mortgage rates staying under 7%

Rates on 30-year fixed-rate loans slid below 7 percent on Dec. 5 as more data on the economy and inflation has investors convinced the Federal Reserve will begin lowering rates in the spring to avoid a recession and guide the economy to a “soft landing.”

At 6.98 percent Tuesday, rates on 30-year fixed-rate loans have come down 85 basis points from a 2023 peak of 7.83 percent registered on Oct. 25, according to daily rate lock data tracked by Optimal Blue.

Fed policymakers left short-term interest rates unchanged Wednesday at their final meeting of the year, and in their summary of economic projections indicated that they anticipate cutting the federal funds rate three times by the end of next year.

Yields on 10-year Treasury notes — a reliable indicator of where mortgage rates are headed next — were down more than 13 basis points after Wednesday’s Fed meeting, as investors gained additional confidence in rate cuts.

The CME FedWatch Tool, which tracks futures markets to predict the odds of the Fed’s next moves, showed investors on Wednesday were pricing in a 76 percent chance of one or more Fed rate cuts by March 20, up from 41 percent on Tuesday and 10 percent on Nov. 13. Futures markets predict a 96 percent chance of at least one rate cut by May 1, and better than even odds (66 percent) that Fed policymakers will cut rates more than once by then.

After hiking the federal funds rate 11 times between March 2022 and July 2023 to the highest level since 2001, the Federal Reserve had been in wait-and-see mode as they assess the impact of previous rate hikes on economic growth.

Mortgage credit availability down 1.7% in November

While mortgage rates look primed for further declines, a separate MBA report released Tuesday showed lenders tightened access to mortgage credit in November to the lowest level in four months.

The decrease in the MBA’s Mortgage Credit Availability Index (MCAI), which fell by 1.7 percent to 96.5 in November, was driven by lender pullback in “non-QM” and jumbo loan programs, MBA Deputy Chief Economist Joel Kan said in a statement.

Non-QM, or non-qualified mortgages, are loans that don’t meet Fannie Mae and Freddie Mac’s strict underwriting guidelines, which can make it more difficult for lenders to sell them to investors on the secondary market.

Jumbo loans are mortgages that exceed Fannie Mae and Freddie Mac’s conforming loan limits, which are going up by 5.5 percent next year, to $766,550 in most markets, to adjust for rising home prices.

While credit availability for FHA, VA and conforming loans remained unchanged in November, the Jumbo MCAI index decreased by 5.4 percent.

Joel Kan

“The conforming and government indices were unchanged over the month but remained close to multi-year lows,” Kan said, in a statement. “Overall credit availability was 7 percent below last year’s level, as the industry has reduced capacity in response to declining origination volume and lenders continuing to simplify their loan offerings.”

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