A sign advertising home loan interest for purchase or refinancing at a Bank of America in New York.
Scott Mlyn | CNBC
Mortgage rates fell sharply last week after rising late in the year. That spurred demand from current homeowners hoping to save on their monthly payments, but it did little to excite potential homebuyers.
As a result, the total volume of mortgage applications last week rose just 1.2% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract rate on 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) fell from 6.58% to 6.42% last week, with points at 0.73 (including the processing fee) for loans down by 20% remain payment. A year ago, that rate was 3.52%.
“Mortgage rates fell last week as markets reacted to data showing a slowing economy and slowing wage growth. All loan types in the survey saw interest rates fall,” said Joel Kan, an MBA economist.
The decline in interest rates triggered a 5% increase in home loan refinance applications. However, the volume was still 86% lower than the same week a year ago. Even with rates down from their previous peak of over 7% last fall, only 270,000 borrowers could benefit from refinancing at the current rate, according to Black Knight, a mortgage technology and analytics firm. A year ago, around 7 million borrowers were able to benefit from the halved interest rate.
Mortgage applications to buy a home fell 1% on the week and were 44% lower than the same week a year ago. That was the lowest level since 2014. Buyers today are not only struggling with higher interest rates, but also with a falling supply. They also see prices drop and may be waiting to see how low they fall.
Mortgage rates have been range-bound so far this week. The market is eyeing the next release of the monthly CPI, which is due on Thursday. If inflation cools any further, mortgage rates could fall further.