Mortgage Applications Rise Despite Unchanging Rates
Mortgage applications increase despite high rates, with buyers accepting the 'new normal' and choosing to refinance later. Market uncertain about interest rate hike.
Despite mortgage rates remaining at the highest level in 23 years, home buyers have seemingly acclimated to the situation as mortgage applications saw an increase in the latest week.
The rates, which stayed put from last week, have left the market uncertain about the U.S. Federal Reserve's plans regarding the hike in interest rates in the near future. The 30-year rate has leveled off at an average of 7.31%, reaching its highest point since December 2000.
However, despite these high rates, both purchases and refinancing demands have risen. This overall surge pushed the market composite index up, according to the Mortgage Bankers Association (MBA). In fact, the market index increased by 2.3% to reach 189 for the week ending August 25 compared to the previous week. It is worth noting that a year ago, the index stood at 260.1.
Applications for home purchases and refinances have shown an increase for the first time in five weeks.
It seems that some buyers have accepted the new normal of 7% rates, choosing to refinance at a later time when they fall. As a result, the purchase index, which measures mortgage applications for the purchase of a home, has experienced a 2% increase from last week.
Nevertheless, despite this moderate improvement, purchase applications still remain down by 27% when compared on a year-over-year basis.
Moreover, some homeowners have seized the opportunity to refinance their properties. The refinance index rose by 2.5%.
The average contract rate for a 30-year mortgage for homes sold at $726,200 or less remained unchanged at 7.31% for the week ending August 25, according to the Mortgage Bankers Association (MBA).
For jumbo loans, which are mortgages for homes sold for over $726,200, the rate increased slightly to 7.28% from 7.27% the previous week.
Meanwhile, the average rate for a 30-year mortgage backed by the Federal Housing Administration (FHA) rose slightly to 7.1% from 7.09%.
In contrast, the rate for a 15-year mortgage remained flat at 6.72% compared to the previous week.
Additionally, the rate for adjustable-rate mortgages dropped to 6.48% from last week's 6.5%.
Typically, when mortgage rates increase, buyers tend to hold off on making purchases until rates decrease. However, due to the current low inventory levels, some buyers are choosing to act quickly and purchase now, irrespective of the interest rate, with the intention of refinancing later. This trend has contributed to a slight increase in mortgage applications this week.
According to Joel Kan, deputy chief economist and vice president at the MBA, the early-week peak in Treasury yields, followed by a decline towards the end of the week, may have encouraged some activity in the housing market.
In early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) was below 4.2%.