Mortgage applications saw a notable uptick last week, driven by a dip in mortgage rates. This trend coincides with growing indications of a cooling U.S. economy, prompting more borrowers to explore homeownership and refinancing opportunities. The Mortgage Bankers Association reported a 3.1% increase in overall applications.
Mortgage Rates Decline Amid Economic Slowdown
Mortgage rates continued their downward trajectory for the third consecutive week. The average contract interest rate for conforming 30-year mortgages, for loans of $806,500 or less, decreased to 6.77% from the previous week’s 6.83%. Similarly, the rate for FHA-backed 30-year fixed-rate mortgages fell to 6.47% from 6.56%. This decline in rates is directly linked to falling Treasury yields, which in turn are influenced by data signaling a weakening U.S. economic outlook.
Key Takeaways
- Mortgage applications rose by 3.1% last week.
- Average 30-year mortgage rates dropped for the third week in a row.
- Purchase applications increased by 1% week-over-week and 18% year-over-year.
- Refinance applications surged by 5% week-over-week, reaching their strongest pace in four weeks.
- The refinance share of mortgage activity climbed to nearly 42%, its highest point since April.
Purchase and Refinance Activity Boosted
Both purchase and refinance applications experienced growth. Purchase applications climbed 1% from the week prior and showed a significant 18% increase compared to the same period last year. This sustained purchase activity is partly attributed to an increasing inventory of homes for sale, which supports homebuying. However, the broader economic weakness has also deterred some potential buyers.
Refinance activity saw a more substantial boost, rising 5% week-over-week. This marks the strongest pace for refinance applications in four weeks, reversing a prior downward trend. The refinance share of total mortgage applications increased to almost 42%, indicating a renewed interest in refinancing among homeowners, likely spurred by the lower interest rates.
Expert Outlook
According to Joel Kan, MBA Deputy Chief Economist, the lower mortgage rates are a direct response to economic data pointing towards a softening U.S. economy. He noted that borrowers are capitalizing on these more favorable rates, leading to the increases in both purchase and refinance applications. While inventory levels are helping the purchase market, Kan acknowledged that economic uncertainties are a factor for some prospective buyers.