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Mortgage Demand Surges as Rates Retreat, But Will It Last?
June 11, 2024
Prospective homebuyers and refinancers got some relief last week as mortgage rates dropped for much of the week, causing mortgage demand to surge. Still, recent economic data suggests the dip in rates may be unlikely to last.
Over the course of the week, the average contract interest rate on the most common type of mortgage, a 30-year fixed mortgage with a conforming loan balance ($ 766,550 or less), decreased from 7.07% to 7.02%. While that is a relatively small decline, it was enough to drive total mortgage demand 16% higher as compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted mortgage demand index.
Applications to refinance a home, which are more sensitive to daily moves in rates, jumped 28% last week as compared to the week prior and were also up 28% from the same week a year ago.
Applications to purchase a home climbed 9% for the week, but were still 12% lower than the same week last year, when mortgage rates were roughly 6.9%. It is not only higher mortgage rates, which have jumped from as low as 3% after the pandemic to more than 7% today, but constrained inventory continues to drive prices higher. A recent survey from Fannie Mae found that a staggering 86% of consumers say no is a bad time to buy a home, so even a small retreat in mortgage rates seems like relief to prospective buyers.
Unfortunately, the dip in mortgage rates is expected to be brief, as a stronger-than-expected jobs report sent rates back up at the end of last week, with rates jumping by 12 basis points. A still-robust labor market is likely to keep the Federal Reserve in its holding pattern, waiting for a clearer sign that inflation is trending down the Fed’s 2% target before cutting interest rates. With so much uncertainty surrounding the Fed’s path, housing industry analysts expect mortgage rates to remain volatile.
