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U.S. Mortgage Applications Dip Despite Lowest Rates in Five Months

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Andrew R. Michaud

• December 20, 2023

# U.S. Mortgage Applications Dip Despite Lowest Rates in Five Months

The Numbers

U.S. mortgage applications have experienced a slight decrease, despite interest rates falling to the lowest level seen in the past five months.

The 30-year rate has dropped by 24 basis points this week, marking the lowest rate recorded since June 2023.

Although mortgage rates have moved lower, this failed to stimulate demand for home-buying and refinancing. The Mortgage Bankers Association (MBA) reported that the overall market composite index, which is a measure of mortgage application volume, decreased during the latest week.

The market index fell by 1.5% to 191.6 for the week ending December 15, compared to the previous week's figures. A year ago, the index stood at 212.5.

Key Details

Despite a decline in interest rates across the board, both home-buying and refinancing activity have seen a decrease.

Buyer demand has softened as potential buyers consider waiting for further decreases in rates before making a home purchase. The purchase index, which measures mortgage applications for home purchases, fell by 0.6% compared to the previous week.

Refinancing activity has also dropped, potentially due to homeowners choosing to wait. The refinance index experienced a decline of 1.8%, except for Veterans Affairs refinance applications, which surged by 18% during the latest week, according to the MBA.

For the week ending December 15, the average contract rate for 30-year mortgages on homes sold for $726,200 or less was recorded at 6.83%. This is a decrease from the 7.07% rate seen the previous week.

# Mortgage Rate Update

The mortgage rate for jumbo loans, specifically the 30-year mortgage for homes sold for over $726,200, has decreased to 7.12% from 7.22% the previous week.

Similarly, the average rate for a 30-year mortgage backed by the Federal Housing Administration has dropped to 6.65% from 6.84%.

For those looking for shorter loan terms, the 15-year mortgage rate has fallen to 6.33% from 6.47% the previous week.

Adjustable-rate mortgages have also experienced a decline, with rates now at 6.47%, compared to last week's 6.58%.

The Impact on Homebuyers

This drop in mortgage rates brings much-needed relief to aspiring homeowners, especially since affordability has recently hit multi-decade lows. It offers an opportunity for potential buyers to enter the housing market or for current homeowners to refinance their high-rate mortgages.

However, despite the decrease in rates, new mortgage applications have declined this week after experiencing a significant increase in the previous week. This suggests that house hunters and homeowners awaiting better rates may be holding off on making any decisions until they see further rate reductions.

Expert Opinion

In response to these rate changes, Mike Fratantoni, Chief Economist and Senior Vice President at the Mortgage Bankers Association (MBA), pointed out that borrowers' response has been relatively modest. This indicates that while rates are dropping, borrowers may not be rushing to take advantage of them just yet.

Market Analysis

The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) was below 3.9% during early morning trading on Wednesday, reflecting the market's reaction to these mortgage rate changes.