Despite mortgage rates reaching towards 7%, U.S. mortgage applications saw a slight increase, signaling that homeowners are still interested in refinancing their mortgages.
Despite mortgage rates reaching towards 7%, U.S. mortgage applications saw a slight increase, signaling that homeowners are still interested in refinancing their mortgages. The Federal Reserve's recent announcement regarding its benchmark interest rate had initially led to expectations of rate cuts starting in March. However, market demand remained strong as some homeowners found the comparatively lower rates appealing enough to proceed with refinancing.
According to the Mortgage Bankers Association (MBA), the overall market composite index, a measure of mortgage application volume, rose 3.7% to 210.0 for the week ending February 2 compared to the previous week. In the same period last year, the index was recorded at 241.2.
While the purchase index, which measures mortgage applications for home purchases, experienced a slight decline of 0.6% from the previous week, the refinance index saw an impressive jump of 12.3%. Interestingly, this trend continued even though a majority of homeowners already had rates below 6%.
For homes sold at or below $726,200, the average contract rate for a 30-year mortgage was 6.8% during the week ending February 2, an increase from the previous week's rate of 6.78%. On the other hand, for jumbo loans or 30-year mortgages for homes sold for over $726,200, the rate dropped to 6.88% from 6.94% in the previous week.
For homeowners seeking a 30-year mortgage backed by the Federal Housing Administration, the average rate decreased from 6.61% to 6.57%. Additionally, the 15-year mortgage rate increased from 6.34% to 6.41% compared to the previous week.
These figures demonstrate that despite rising mortgage rates, there is still considerable activity in the mortgage market, particularly in terms of refinancing. Homeowners seem to be taking advantage of lower rates while they still can.
The rate for adjustable-rate mortgages fell slightly to 6.14% from last week's 6.23%. However, home buyers are still grappling with low inventory and rising home prices, making housing affordability a growing concern. The Federal Reserve's decision to delay interest rate cuts in March has also contributed to the upward movement in mortgage rates.
Even though the increase in refinancing activity may seem contradictory, it can be explained by the fact that many homeowners who bought homes with loans originated in 2023 are finding rates in the 6% range attractive. This is particularly true for those who purchased homes when the 30-year mortgage rate was as high as 8%.
According to Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association (MBA), the current rates have not generated much response in the refinance market, since most homeowners already have mortgages with significantly lower rates. However, purchase activity has been strong at the beginning of 2024 compared to the final quarter of 2023. Nevertheless, it remains weaker than the previous year due to low housing supply.
In response to these developments, the yield on the 10-year Treasury note BX:TMUBMUSD10Y reached over 4% during Wednesday's early morning trading session.
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