Mortgage Demand Surges Over 10% on Lower Interest Rates

According to the Mortgage Bankers Association, a decline in mortgage interest rates led to a notable surge in total mortgage application volume, rising by 10.4% from the previous week. The average contract interest rate for 30-year fixed-rate mortgages dropped to 6.75%, the lowest in three weeks, contributing to the increase in applications. Although applications for home purchases rose by 9% for the week, they remained 20% lower than last year, indicating a potential impact from higher mortgage rates compared to a year ago. However, the recent rate drop seemed to attract buyers, as shown by increased activity in the housing market.

In some areas, like Detroit, buyers exhibited renewed interest, drawn by the more favorable rates. At an open house in Detroit, potential buyers explored a recently listed home, expressing interest fueled by the recent rate reduction. The drop in rates also prompted an 11% increase in applications to refinance home loans compared to the previous week, with a 10% year-over-year increase. Despite the majority of existing borrowers already having lower rates, the recent decrease encourages some to explore refinancing options to capitalize on potential savings.

More Homeowners Considering Selling Despite Lock-in Effect

Some homeowners are considering selling despite the challenging rate environment, as the share of homeowners with relatively low rates has fallen from a record high of 92.8% in mid-2022 to 88.5% in the third quarter of 2023, based on a Redfin study. Major life events, job changes, or the desire for a new house or city often drive homeowners to sell. The decline in mortgage rates may be encouraging some to move, especially those with rates above 6%, and the lock-in effect is somewhat diminishing as listings start to increase.

While declining mortgage rates have positively impacted inventory, concerns about finding the next home persist due to a housing shortage. Sellers, however, recognize that rates are unlikely to return to 3%, making selling more feasible. Despite this, affordability remains an issue, with the monthly payment on a median-priced U.S. home with an average mortgage rate of 6.62% costing $2,399, up 7.4% from a year ago, indicating challenges for potential buyers even as rates trend down.

Builder Sentiment Rises Again Amid Falling Mortgage Rates

Builder confidence notably improved in January, rising 7 points to 44 on the National Association of Home Builders’ monthly index. Although still below the neutral threshold of 50, this marks a 10-point increase over the past two months and represents the highest since September. The positive shift is attributed to a significant decrease in mortgage interest rates from around 8% in mid-October to the 6% range in December, fostering increased affordability and enticing buyers who had stepped back due to elevated borrowing costs. Despite the optimism, challenges loom for builders, including rising material costs, supply constraints, and the need for increased lot availability.

Breaking down the index components, current sales conditions rose 7 points to 48, sales expectations for the next six months increased by 12 points to 57, and buyer traffic saw a 5-point rise to 29. Regionally, the Northeast stood out with the most significant improvement, now in positive territory at 55 on a three-month moving average. While sentiment remained flat in the Midwest, slight increases were noted in the South and West, reinforcing the positive outlook for the housing market in the coming months.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.