Despite a slight dip in mortgage rates, the demand for mortgages has continued to slide for the second consecutive week, signaling a hesitant market. According to the weekly survey from the Mortgage Bankers Association, total mortgage demand fell by 0.7% for the week, with both purchase and refinance applications experiencing declines.
The decline in mortgage applications is notable, given the context of a marginal decrease in mortgage rates. The average contract interest rate for a 30-year fixed-rate mortgage fell to 6.93%, down by 4 basis points from the previous week. This marks the second-lowest level in the last six weeks. While a decrease in rates typically stimulates mortgage activity, the current trend suggests other factors may be at play.
Both purchase and refinance demand saw declines for the second straight week, with purchase applications remaining mostly unchanged but still down, while refinance applications dropped by 1.6%. The refinance share of mortgage activity also decreased to 30.8% of total applications, indicating a reduced interest in refinancing despite favorable rate conditions. Additionally, the adjustable-rate mortgage (ARM) share of activity decreased to 7.0% of total applications, reflecting a broader trend of borrowers opting for fixed-rate mortgages amid uncertain market conditions.
Joel Kan, MBA’s Vice President and Deputy Chief Economist, provided insights into the market dynamics, highlighting the potential impact of lower rates on inventory and refinancing activity. He stated, “Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6 percent by the end of the year.” This projection suggests a cautious optimism regarding the potential for increased housing inventory in the coming months.
Kan also pointed out the limited incentive for rate/term refinances in the current environment, noting, “Similarly, with rates remaining elevated, there is very little incentive right now for rate/term refinances.” This observation underscores the importance of not just the absolute level of mortgage rates but also their relative movement and borrowers’ perception of future trends in shaping mortgage demand.
Looking ahead, market observers will closely monitor mortgage rate movements and their impact on housing market dynamics. While lower rates have the potential to stimulate activity, broader economic trends and policy decisions will continue to shape the trajectory of the mortgage market in the months to come.