A “For Sale” sign sits in front of a new home May 27, 2004 in Miami, Florida.
Joe Raedle | Getty Images
Mortgage demand ended 2023 on a sour note, despite a sharp drop in mortgage interest rates during December.
Total application volume was down 9.4% for the week ending December 29, compared with two weeks earlier, according to the Mortgage Bankers Association’s seasonally adjusted index. The MBA was closed last week, and the results include adjustments for the holidays.
The average rate on the 30-year fixed ended the year at 6.76%, lower than where it was two weeks ago, but higher than it was a week ago. That, however, is still well below the 8% high seen in mid-October.
“Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023,” said Joel Kan, MBA’s vice president and deputy chief economist. “The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response.”
Applications to refinance a home loan ended the year 15% higher than the same period a year ago. Applications for a mortgage to purchase a home ended the year 12% lower.
Those who can benefit from a refinance are trying to get in while they can, but the vast majority of homeowners today have rates in the 4% and even 3% range. Rates sat near record lows for the first two years of the pandemic, so most borrowers refinanced at that time.
Homebuyers are still contending with very little supply and very high, and rising, home prices.
The question now is, with rates in the 6% range, will they stay there, and if they do, will that be enough to get potential sellers off the fence to get some more supply onto the market. The builders are a bright spot, especially because they can buy down mortgage rates, but new homes do come at a price premium.
Mortgage rates started this week higher after also edging up on Friday. They are now at the highest level in two weeks, but still in the 6% range.
“It’s not necessarily indicative of ongoing momentum toward higher rates,” noted Matthew Graham, chief operating officer at Mortgage News Daily, who added that momentum is most likely to be determined by the incoming economic data from the minutes from the latest Federal Reserve meeting released on Wednesday and the government’s monthly employment report Friday.
