Mortgage applications have increased by 7.2% on a seasonally adjusted basis, according to data recently released by the Mortgage Bankers Association's Market Composite Index. While the rise in applications is positive, it remains well below levels from a year ago when borrowing rates were over a percentage point lower than they are currently. The average long-term US mortgage rate continues to ease for the second consecutive week. Last week, the benchmark 30-year home loan fell to 6.71% from 6.79%, according to Mortgage buyer Freddie Mac. However, the rate is still elevated compared to the 5.23% average from a year ago.
Applications to refinance a loan rose by only 6% over the past week, which was less than a third of all applications. This is due to the continued elevated rates, which have reduced the benefit of a rate/term refinance for many borrowers and discouraged cash-out refinances. Joel Kan, MBA’s vice president and deputy chief economist, said that the elevated rates continue to constrain home buying activity in many markets, along with low for-sale inventory. According to a recent Redfin report, more than 91% of US homeowners with mortgages have an interest rate below 6%, which contributes to the shortage of new listings on the market.
While potential homebuyers and a slim number of current homeowners are trying to take advantage of easing borrowing costs, it remains to be seen whether the recent rise in mortgage applications will continue. Despite the uptick in applications, it is still well below levels from a year ago, and the average long-term mortgage rate remains elevated compared to last year. It is important to consider the potential impact of elevated rates on both current homeowners and potential homebuyers.