Mortgage rates have reached their lowest levels since July, leading to a significant increase in demand for mortgages. In the past week alone, rates have dropped by 10 basis points, and the 30-year rate is now 54 basis points lower than a month ago.
According to the Mortgage Bankers Association (MBA), this drop in rates has provided a boost to both buying and refinancing demand in the housing market. The overall market composite index, which serves as a measure of mortgage application volume, saw a substantial increase in the latest week, rising by 7.4% to reach a value of 194.5. Comparatively, at this time last year, the index stood at 210.7.
Rising Activity in Home-Buying and Refinancing
Lower mortgage rates have had a significant impact on the housing market, leading to increased activity in both home-buying and refinancing.
The purchase index, which measures mortgage applications specifically for the purchase of a home, rose by 3.5% compared to the previous week.
In contrast, refinancing activity experienced a surge. The refinance index saw a notable increase of 19.4%, with FHA and VA refinance applications experiencing a particularly significant rise, according to the MBA.
Average Rates for Different Mortgage Categories
An analysis of average contract rates for different mortgage types reveals interesting trends:
The average contract rate for the 30-year mortgage, for homes sold for $726,200 or less, stood at 7.07% for the week ending December 8. This represents a decrease from the previous week's rate of 7.17%.
For jumbo loans, or mortgages for homes sold for over $726,200, the average rate is now 7.22%, down from 7.35% in the previous week.
The combination of lower rates and increased activity in the housing market provides a favorable environment for both buyers and homeowners looking to refinance their mortgages.
Mortgage Rates Take a Dip
The average rate for a 30-year mortgage backed by the Federal Housing Administration has dropped to 6.84% from 6.98%. Similarly, the 15-year mortgage rate has fallen to 6.67% from 6.8% compared to the previous week. Adjustable-rate mortgages have also experienced a decrease, with the rate falling to 6.47% from last week's 6.58%.
Homeowners Seize the Opportunity
Homeowners are taking advantage of the lower rates to refinance their mortgages. While home buyers may also benefit, it is the existing homeowners who are getting the most out of this opportunity. Many economists predict that rates will continue to decline and reach the 6% range by the end of next year, which could stimulate home-buying activity.
Slow Sales Activity
However, since the majority of homeowners already have rates below that range, it might take some time for sales activity to pick up as there may be limited inventory available.
Insights from the MBA
According to Mike Fratantoni, chief economist and senior vice president at the MBA, "Mortgage rates dropped last week, as incoming data point to a slowing economy and support a pivot by the Federal Reserve to begin cutting rates next year." He further added, "Borrowers who had seen rates near 8 percent earlier this fall are now seeing some lenders quote rates below 7 percent."
Market Reaction
As a result of these rate drops, the yield on the 10-year Treasury note BX:TMUBMUSD10Y was below 4.2% in early morning trading on Wednesday.
