U.S. mortgage demand edges up as rates fall for second week

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US mortgage demand edges up

Highlights

Total U.S. mortgage application volume rises 3.4% last week as the average 30-year fixed mortgage rate falls to 7.37% from 7.41%.
Refinance applications increase 3% week-over-week but remain 61% lower than one year ago, as about half of borrowers hold sub-4% rates.
Adjustable-rate mortgage share grows to 11.3%, the highest in more than a year, as borrowers seek alternatives amid elevated fixed rates.

Application gains and rate moves

As reported by CNBC, citing the Mortgage Bankers Association, total mortgage application volume rises 3.4% last week from the previous week on a seasonally adjusted basis.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less falls to 7.37% from 7.41%. Points increase to 0.76 from 0.75, including the origination fee, for loans with a 20% down payment.

Joel Kan, the MBA’s vice president and deputy chief economist, says the decline in rates gives borrowers some relief, with applications rebounding slightly, particularly conventional applications. He adds that mortgage rates remain more than a percentage point above the same week last year, while most homeowners still hold rates well below current market levels.

Refinance activity remains subdued despite the weekly improvement. Applications to refinance a home loan rise 3% on the week but stay 61% lower than the same week one year ago, while about half of all borrowers currently have a mortgage rate below 4%, according to Federal Housing Finance Agency National Mortgage Database data.

Shift toward riskier loans and market outlook

Demand for home purchase loans also shows only a partial recovery. Applications for a mortgage to buy a home rise 4% on the week but remain 18% lower than a year earlier as elevated borrowing costs, rising home prices and broader economic concerns continue to weigh on buyers.

Some prospective buyers are also waiting to see the outcome of the mid-term elections, according to anecdotal comments from agents. As households look for savings, a larger share is choosing adjustable-rate mortgages, with the ARM share of applications increasing to 11.3%, the highest level in more than a year.

The average contract rate for 5/1 ARMs declines to 6.41% from 6.46%. These loans are viewed as riskier because their rates reset to prevailing market levels after the initial fixed period ends.

Mortgage rates are unchanged at the start of this week, according to a separate survey from Mortgage News Daily. With little economic data for the bond market to absorb, investors are also watching Wednesday’s Federal Reserve meeting, where no rate change is expected but comments from Fed Chairman Kevin Warsh could still move markets.

Our earlier coverage of the debate over Fed communications highlighted how mixed signals from policymakers and September’s 3.7% year-on-year CPI reading kept markets divided on whether another rate hike was coming. We noted that frequent public remarks by key officials helped temper expectations for further tightening after the last increase, showing how Fed messaging can quickly move rate pricing ahead of the next meeting.

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