Mortgage demand fell for the second consecutive week, dropping 5.1% to an index of 277.5 for the week ending October 4th, according to the latest weekly survey from the Mortgage Bankers Assocation.
- This decline follows last week’s 1.3% dip and reflects a larger trend driven primarily by rising interest rates. While mortgage demand is still at its third-highest level in the last two years, the steep drop was led by a significant decline in refinancing activity.
Refinance demand took the biggest hit, falling 9.3% from the previous week. It’s now down 11.7% from its recent high just two weeks ago, a 28-month peak.
- The refi boom that bolstered mortgage demand over the past several months seems to be losing steam, as higher interest rates deter homeowners from seeking new loans.
Purchases Hold: In contrast, purchase demand remained relatively unchanged. Buyers have been steady in the market, with both falling and rising rates, signaling that home purchase activity has been more resilient compared to refinancing. The consistent demand for purchases suggests that those looking to buy homes may have already factored in higher rates.
Rates: The average contract interest rate for a 30-year fixed-rate mortgage jumped 21 basis points to 6.36% for the week ending October 4th, the highest level since the end of August.
- The recent rise in rates follows the Federal Reserve’s decision to cut its benchmark rate by 50 basis points, coupled with a stronger-than-expected September jobs report, both of which triggered a reversal in mortgage rate trends.
What They’re Saying: Mike Fratantoni, MBA’s SVP and Chief Economist, was optimistic about home purchases as inventory levels rise, “…the decision to buy a home is impacted by many factors, not just the level of mortgage rates. The largest constraint for many prospective homebuyers over the past year had been the lack of inventory. Now, there are more homes available in many markets across the country, and with mortgage rates still low compared to recent history, at least some potential homebuyers are moving ahead.”
Bottom Line: The recent increase in mortgage demand was largely fueled by a short-lived refinancing boom. However, as mortgage rates rise in response to a stronger economy, the drop in refi activity could signal a cooling in overall mortgage demand in the weeks ahead.
