The mortgage market experienced a notable decline in demand last week, even as average mortgage rates dipped slightly. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to 6.93% from 6.95%, yet this reduction did not translate into increased mortgage activity. Total mortgage application volume fell by 6.6%, highlighting a slowdown in both refinancing and purchasing applications.
Applications to refinance home loans saw a significant drop, declining by 7% for the week. Despite this weekly decrease, refinancing applications were still 39% higher than the same period one year ago, illustrating a broader trend of volatility in refinancing activity as overall volumes remain low. Meanwhile, applications for mortgages to buy homes fell by 6% during the week, though they were 7% higher compared to last year.
"Mortgage rates decreased on average over the week, as markets brushed off unexpectedly strong inflation data. Despite mortgage rates declining, mortgage applications decreased to their slowest pace since the beginning of the year," said Joel Kan, an economist with the Mortgage Bankers Association (MBA).
The slight decrease in mortgage rates came amid unexpectedly strong inflation data, which markets largely ignored. This week started with slightly higher mortgage rates; however, holiday-shortened weeks often result in increased volatility within the bond market. Despite the lower rates, housing affordability issues continue to sideline many potential buyers, contributing to the decline in mortgage demand.
"Purchase applications were down for the week, as buyers remained on the fence, although loosening inventory may help support activity in the coming months," added Kan.
The average contract interest rate decrease was accompanied by an increase in points to 0.66 from 0.64 for loans with a 20% down payment, reflecting an intricate balance of market factors. As potential buyers and refinancers navigate these conditions, the pace of mortgage applications remains sluggish, marking the slowest pace since the start of the year.