Mortgage applications in the US declined last week even though mortgage rates dropped slightly. The Mortgage Bankers Association’s (MBA) seasonally adjusted index showed that total mortgage applications dropped 5.3% from the previous week.
The average interest rate on 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less declined to 7.41% last week, down from 7.50% a week earlier. The average points paid by borrowers fell to 0.75 from 0.83, including the origination fee. These figures apply to loans with a 20% down payment, according to the MBA.
The decline in mortgage rates did not encourage more Americans to apply for home loans. Applications for both home purchases and mortgage refinancing declined over the week.
Joel Kan, an economist at the Mortgage Bankers Association (MBA), said mortgage rates had fallen for the first time in more than two months. However, he added that the lower rates were not enough to increase mortgage application activity, as noted by CNBC.
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US mortgage refinance applications fall 2%
{{/usCountry}}Also read: Oil prices jump over 2% as Iran-US tensions deepen and crude inventories fall
US mortgage refinance applications fall 2%
{{/usCountry}}Applications to refinance existing home loans declined 2% from the previous week. These applications are usually more sensitive to weekly changes in mortgage rates. However, the latest decline was smaller than some of the drops recorded in previous weeks when rates were rising. Applications to refinance home loans were 59% lower than during the same week a year ago.
Mortgage rates are now more than one percentage point higher than they were a year ago. This means fewer homeowners can benefit from refinancing because replacing an existing mortgage with a new loan may not offer them better borrowing terms. Applications for mortgages to buy homes fell 7% last week, marking a sharper decline than the drop in refinancing applications, according to the MBA.
US home purchase mortgage applications drop 7%
Compared with the same week last year, applications for home purchase mortgages were 18% lower. This shows that demand from prospective homebuyers remains weak. Homebuyers appear to be more concerned about the overall level of mortgage rates than small weekly changes. Even though rates declined slightly last week, borrowing costs remain high enough to discourage many people from purchasing homes, according to CNBC.
US pending home sales fall in September
A report released by the National Association of Realtors on Wednesday showed a sharp decline in pending home sales in September. Pending home sales measure signed contracts for homes that have not yet completed the sale. The figures offer a real-time view of housing market activity.
Mortgage rates remained elevated in October after staying high during September. This continued pressure on borrowing costs has weighed on homebuyer demand, as reflected in the decline in pending home sales and mortgage applications.
Adjustable-rate mortgages hold 10.5% share
Among buyers who are still seeking home loans, adjustable-rate mortgages (ARMs) continue to attract a significant share. These loans typically offer lower initial interest rates than 30-year fixed-rate mortgages, making them an alternative for borrowers trying to reduce their initial borrowing costs, according to CNBC.
Unlike fixed-rate mortgages, ARMs can have interest rates that change after an initial period. Their rates may reset according to market conditions at the end of that period, potentially increasing borrowers' monthly payments.
The share of adjustable-rate mortgages remained steady at 10.5%, according to Joel Kan of the MBA. He said ARM rates were almost one percentage point lower than 30-year fixed mortgage rates, offering eligible borrowers a lower-rate option when purchasing a home.
US mortgage rates remain steady this week
A separate survey from Mortgage News Daily showed that mortgage rates had not changed significantly at the beginning of the week. Mortgage rates were particularly volatile last week because several monthly inflation reports were released. Such economic data can influence expectations about interest rates and cause mortgage rates to move.
Mortgage rate movements this week appeared to follow changes in oil prices, according to Mortgage News Daily. However, the relationship between oil prices and mortgage rates is not always consistent.
Matthew Graham, chief operating officer at Mortgage News Daily, warned that the connection between oil prices and mortgage rates should not be given too much importance. He said the relationship had been highly unreliable for more than a month, as cited by CNBC.